INSURANCE & RISK MANAGEMENT

Life Insurance Advanced Markets—

What Keeps Us Awake at Night?
by Steve Parrish, JD, CLU, ChFC, RHU

It’s not easy being in the life insurance business

these days. Low interest rates are squeezing life in-
ABSTRACT surers’ profits. Add to this the increased Department
So what’s keeping life insurance advanced of Labor (DOL)-generated compliance costs for the
marketers awake at night? The overall cate- fiduciary rule. At the same time agents are experienc-
gories of concern break into markets, tax, the ing foot-dragging from clients due to possible tax law
economy, and legal/regulatory. For example, changes. It’s enough to keep some insurance execu-
there is universal agreement that many ad- tives awake at night.
vanced sales are being delayed by the pros- These issues are particularly vexing to those who
pect of tax law change and that the persistent
work in life insurance’s advanced markets. Because so
low-interest-rate environment has been a
many advanced sales involve sophisticated tax-plan-
ning techniques, it’s not surprising that political un-
drag on the life insurance industry. However,
certainty has caused advisor and client indecision,
the predominant regulatory concern in ad-
and this translates to stalled sales and unexecuted
vanced markets is the applicability of a fidu-
estate plans. To get a more granular look at current
ciary standard to life insurance sales.
issues in the advanced markets, I’ve reached out to
organizations expert in this area. I’ve discussed these
issues with management of the Association for Ad-
vanced Life Underwriting (AALU), members of the
Advanced Sales Committee of the Life Insurance
Marketing and Research Association (LIMRA), and
faculty at The American College of Financial Ser-
vices.1 Who better to help identify the pressing ad-
vanced market issues of the day?
The conclusion I have drawn from these con-
Vol. 71, No. 4 | pp. 40-43 versations is that there is an amalgam of challeng-
This issue of the Journal went to press in June 2017. ing issues that need to be addressed in order to move
Copyright © 2017, Society of Financial Service Professionals. forward. If we can identify and prioritize the issues,
All rights reserved.
progress is possible.

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So what’s keeping life insurance advanced marketers he said. He suggested that the industry focus on digital
awake at night? The overall categories of concern break applications and the electronic delivery of policies.
into markets, tax, the economy, and legal/regulatory.
Tax
Markets There is universal agreement that many ad-
Both AALU and LIMRA’s Advanced Sales vanced sales are being delayed by the prospect of
Committee have the word “advanced” in their tax law change. “The client acknowledges the need
names. The question being asked in a way like and even agrees with the insurance solution, but still
no time before is, what do we really mean by “ad- wants to delay the purchase pending possible tax re-
vanced?” As Will Swaim, assistant vice president form,” said Will Heidbreder, an advanced markets
at AALU put it, “We need to make our mission attorney on LIMRA’s Advanced Sales Committee.
clear, and ‘advanced’ is what we do, but not who Professor Hopkins agrees, suggesting a clear indi-
we are.” Ray Bening, an insurance advisor and cur- cator of this client inertia is the significant drop in
rent AALU board director, pointed out that it can estate planning activity for attorneys who work with
be difficult to talk to senators and representatives high-net-worth families.
about life insurance issues when it sounds like ad- Delay is not necessarily a temporary phenome-
vanced underwriting is an elite subset of the in- non. Clients and their attorneys have experienced on-
surance industry. “When we advocate to Congress going uncertainty over tax rules, and this has caused
on life insurance issues, we are promoting public a built-in reluctance to act. This is the reason why
policies for the financial and retirement income se- the AALU has long advocated for a “sustainable tax
curity of the American public,” said Bening. regime” with regard to gift and estate tax law. As Be-
It’s not just a matter of terminology. LIMRA Ad- ning put it, “We’re not trying to tell Congress what
vanced Sales members report that insurers are strug- the right tax law should be, but rather that it needs to
gling with maintaining advanced markets staffs when be predictable and maintainable.” Witness the con-
so many life insurance sales are focused on term insur- tinued up-and-down, in-and-out nature of the fed-
ance and hybrid policies. Most companies agree that eral estate tax law in the last 20 years. It has led to
life insurance is more effective when bought as part uncertain estate plans, added costs, and sometimes
of a planning process than when sold as a commod- disastrous results for families and businesses.
ity, but that doesn’t necessarily mean the transaction While the estate tax is typically cited as the cul-
is “advanced.” David Littell, a professor of taxation at prit holding up advanced sales, income tax policy is
The American College, reports a significant emphasis a concern as well. Andrew Rinn, another member of
is being placed on hybrid products that address not LIMRA’s Advanced Sales Committee, notes that in-
only mortality but also chronic illness and long-term come tax uncertainty can delay corporate-owned life
care needs. These products involve planning issues insurance (COLI) cases and “other concepts where
outside of the traditional mortality, tax, and liquidity the leveraging effect of income taxes is important
concerns of advanced life insurance sales. to the plan’s design.” It’s not that the validity of the
Jamie Hopkins, an estate planning professor at concept is in question, but rather that it is difficult
The American College, suggests if life insurance is to to model results when tax rates are in flux. Professor
be successfully marketed to millennials, the delivery Littell asked, for example, whether the potential low-
of these products should be a priority for the industry. ering of income tax rates helps or hurts a Section 162
“Insurers and agents need to get on board with the idea executive bonus design. “On the one hand, the 162
that the client can’t always meet the advisor in person,” bonus plan benefits from the leverage of favorable in-

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come tax rules associated with life insurance; but on the plaintiff’s bar has awoken to this litigation oppor-
the other hand, it is easier to pay for this after-tax tunity. Some kind of fiduciary standard for those who
concept when tax rates are lower.” promote life insurance is seen by many as inevitable.
In talking with these experts, it’s interesting to note There are other legal issues in life insurance
that sometimes it’s not the macro tax issues that trouble than just the fiduciary rule. AALU has posted sev-
insurers and their advisors. Sometimes the mundane eral bulletins concerning life insurance beneficiary
minutia can be the most vexing. LIMRA’s Advanced designations. A spate of court cases has dealt with
Sales Committee, for example, struggles with how in- whether the court should honor the recorded ben-
surers should report valuations of life insurance policies eficiary designation or, instead, pay to a different
on IRS Form 712. For years, the IRS has provided in- beneficiary. Many of the cases revolve around life in-
complete guidance on valuing a policy for tax purposes, surance policies on which a former spouse remains
yet expects insurers to provide this information. the policy’s beneficiary notwithstanding a contract or
alimony agreement providing otherwise. Other cas-
The Economy es deal with the even trickier issue of how to handle
The persistent low-interest-rate environment has a designation when there is a simultaneous death of
been a drag on the life insurance industry. This in- the insured and beneficiary. These cases are typically
sidious economic factor has made margins razor-thin both state law and fact dependent. Although these
for insurers and consequently affected their ability kinds of issues are admittedly everyday in nature, the
to staff and support advanced markets departments. advanced markets experts face the ongoing challenge
LIMRA’s committee has watched some of its mem- of advising properly on these matters.
bers suffer job losses and staff reductions. Many tax, legal, and regulatory issues require ad-
vocating to legislative and regulatory authorities. Life
Legal and Regulatory insurance, and its use in planning, is complex and
The predominant regulatory concern in ad- requires advanced markets expertise and input. Ap-
vanced markets is the applicability of a fiduciary propriate laws cannot be adequately crafted without
standard to life insurance sales. When will we have coordination between government and industry. A
finality from the DOL and the Securities and Ex- concern for Bening is the inconsistent industry mes-
change Commission (SEC), and what is the litigation sages currently being sent to Congress. Both the tax
exposure to insurers and their advisors? There is no and fiduciary topics in the insurance industry are ones
consensus in the industry as to whether this focus that have engendered differing perspectives and, con-
on a fiduciary standard is good or bad. The original sequently, conflicting stances. Some want the fiduciary
condemnation of the DOL’s actions by insurers and rule retained but the estate tax repealed; others want
advisors has, for many, moderated lately. Said Profes- repeal of the fiduciary rule and a continued estate tax.
sor Hopkins, “The flag we wave for life insurance is “We don’t have to agree on everything, but we do need
tied to planning—we need to embrace planning.” to offer a uniform face to Congress,” Bening said.
Many are now acknowledging that a fiduciary
standard may help insurance agents transition from Conclusion
salespersons and transactors to advisors and planners. It came through loud and clear in my discussions
Either way, most of those I talked with feel that in- with these experts that no one is wavering on the im-
surance companies have so much up-front cost sunk portance of life insurance. Individuals, families, and
into complying with the DOL best interest rule that businesses will continue to need the benefits only life
it’s too late to turn back. Plus, the sleeping giant of insurance can provide. Nor is there disagreement that

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in order to make the right life insurance advanced (1) AALU is a trusted, influential voice for the life insurance com-
planning decisions, consumers need quality advice. munity in Washington, DC. It has a singular focus on the issues
affecting life insurance products, professionals, and clients.
It’s simply a matter of wrestling with the details of
LIMRA’s Advanced Sales Committee’s target membership is
getting the message out and making it work for the heads of advanced sales or the technical advising function for indi-
client. The challenges of life insurance may be enough vidual insurance and annuity products with insurance companies.
to keep some of us awake at night, but that’s because The committee discusses regulatory and tax law changes, best prac-
we recognize how important this solution is. ■ tices, and issues around advanced sales (individual life and annuity
products used in financial planning).
Steve Parrish, JD, CLU, ChFC, RHU, is an adjunct law profes- The American College of Financial Services is a nonprofit, ac-
sor and consultant. He can be reached at stephen.parrish@ credited education institution, where courses are researched and writ-
drake.edu. ten by a faculty of the nation’s top thought leaders in financial services.

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