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Insurers Fail Trust Test

Thursday, November 10, 2011

The results of “The Role of Trust in Consumer Relationships” consistently put banking, media and insurance organizations at the foot of the trust survey. The different industries also had specific concerns. In the insurance industry, “trust” is more than a shared concept; it’s a goal tied to business development, strategy and execution. Yet, according to the study, only 48% of consumers in the U.S. and the UK trust their insurance provider. Consumers had a specific concern with transparency of information with banks and insurance companies, for example with returns, charges and small print – “making the complex simple”. Prevailing sales and marketing practices in the life insurance industry rely on hypothetical illustrations that are a comingling of undisclosed charges and arbitrary rate of return assumptions and pages of small print.

Why does trust matter? If you do not have trust in the financial services industry, then you do not have a client. Getting someone to commit to become a client takes a small amount of trust, securing their loyalty takes a tremendous amount of trust, which in turn leads to a longer term relationship, greater share of wallet, and higher advocacy or word-of-mouth. Business leaders are struggling to regain the trust of the public following the global economic crisis”, BBC Business Editor, Davos 2010. “The development of trust is particularly important within service industries because of the abstract nature of most service products”(Coulter and Coulter3, 2003).

According to survey results on “The Consumers’ View on What Could Help to Build Trust” summarizes what consumers recommended in terms of trust building activities:

1. Improved communications – this encompassed both communication in itself (quality and clarity) as well as transparency, ‘no surprises’ and advance information for better deals and problems arising, etc.

Life insurance clients have been disappointed by unpleasant surprises in Universal Life (UL) and Variable Universal Life (VUL). Many clients who bought a UL policy in the 1980s were unpleasantly surprised to find that more premium was needed since their interest rates have changed since when they first purchased the policy unfavorably. Many Clients who bought variable universal life in the 1990s were unpleasantly surprised to find that more premium was needed since their policy rate of return does not match their hypothetical illustration rate at the time of sale. Will you(r clients) be surprised some years from now when they look back at their Indexed Universal Life policy that is currently the favor of the day?

2. Providing ‘customer care’ or a sense of being ‘looked after’

– “Do what they say they are going to do”

– “Put customers first above their own profit”  

– “Providing accurate and true answers to my inquiries”

Most agents/brokers say that they work in the client’s best interest, but few actually prove it with independent research. Putting the client first involves due diligence and reviews every year. A simple and easy way to review their life insurance policies is to run a Veralytic research report every year. Veralytic reports are derived from the industry’s largest database to include thousands of actual insurance company pricing representations for hundreds of different products and actual performance data for invested assets underlying policy cash value, and reveals the overall suitability of a given life insurance product relative its peer-group.

3. Ensuring a high level of competency and conduct from employees  

– “Sales people to be more honest”

– “Very knowledgeable about my policy”

– “Not being too pushy when they sell you a contract”

As Mary Rowland said in “Where Oceans of Knowledge Meet”, “…what the insurance industry needs is not more honest people but an objective evaluation service to keep more people honest.” There is at least $3 Trillion in life insurance policy cash values and few clients or their advisors know what they are actually paying for cost of insurance charges (COIs), fixed administrations expenses (FAEs), cash value based “wrap fees” (M&Es), and premium loads or what they are actually getting in the performance of invested assets underlying policy cash values.  According to National Association of Insurance Commissioners (NAIC) reports that 62% of the people who own life insurance do not know what they have or why they bought it. There is a clear and desperate need for more information about the suitability and proper management of life insurance policy holdings.

The Uniform Prudent Investors Act or similar state legislation has been adopted in many states, with more to come. This has exponentially increased the potential for more liability on trustees, fiduciaries, advisor and even agents and brokers. Such activity suggests that developing a systematic approach for carrier product selection is not only a sound business practice; it will also assist insurance brokers in limiting exposure to professional liability and future errors-and-omissions claims.1

In addition there were a number of other recommendations some of which were more specific to the industry, for example:

– Admit mistakes and then solve them – fast

– Greater transparency

– More transparent pricing

Admitting the mistakes of the past is easy especially since the research was not available before now. Now that policy research is available it is even easier and affordable to use information to discover new opportunities for improvement and in the process develop new business. The life insurance industry of yesteryear started with a small number of insurers/products in search of a sale from a large number of prospects/clients (i.e. product centric). The future of the life insurance business will instead start with a large number of insurers/products and match the right insurer/product for each individual client situation (i.e. client centric).

With permanent life insurance, suitability depends on a number of factors, and the lowest premium may not always offer the best value. The desirability of permanent life insurance products depends principally upon the following five (5) factors:

  • Financial Strength and Claims-Paying Ability
  • Cost Competitiveness
  • Pricing Stability
  • Cash Value Liquidity
  • Historical Performance of invested assets underlying policy cash values

All 5 factors contribute to the appropriateness of permanent life insurance policies, and no single factor is sufficient to determine desirability. Veralytic reports measure all 5 factors for any policy holding against benchmark averages for peer-group products.

Veralytic’s patented process uncovers the “real cost” of your (client’s) life insurance policies. Veralytic subscribers bring to all prospects and clients the independent research necessary to know which insurers and which products offer the best available rates and terms (BART) from the universe of products and for each individual client situation.

Use the Veralytic Reports to determine the appropriateness of pricing, the reasonableness of performance expectations for invested assets underlying policy cash values, and overall suitability for your clients' policies based on the 5 factors of suitability.  Click here and get up to 3 Veralytic research reports under our NO-RISK trial subscription.


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