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“Client First” Mentality?

While those who know me understand that I can be critical of some aspects of the life insurance industry, I don’t throw carriers and agents under the bus for the fun of it.  However sometimes I just have to shake my head.

In previous writings I have referenced the fact that some agents are under pressure to do what is best for the insurance company, not what’s best for the policy owner.  What do I mean by that?  Recently an agent sent me the following letter:

Dear “Joe”:

Your agent contract and appointment to represent [XYZ Insurance Company] is being terminated under the provisions of Section 16, (C), (3), which is part of the termination provision of the agent contract.  The termination provision provides, among other things, that: The Company, at its sole discretion, may terminate this Contract, at any time, without prior notice if you shall, (3) replace the Company’s policies with another Company.

This termination is effective immediately.

Sincerely,

“Bob”

Director Client Relations

I’m not joking.  The carrier has no understanding of the client’s financial and planning situation or any idea of the rationale behind the decision and it doesn’t care.  Solely due to replacing a contract which resulted in assets leaving the company for another, the agent is summarily —-canned.

Did you notice that this letter was signed by the “Director of Client Relations”?  The irony is amazing.  An agent who is working for the benefit of a client is being fired by the Director of Client Relations.  I think I could come up with a more apropos title…

But this is reminiscent of a number of situations which have been related to me and which I have experienced first hand.  One agent told me he would love to have me audit his entire book of business in an effort to find failing policies and bring value to his clients through internal remediation strategies or replacements with market alternatives but he couldn’t (wouldn’t) because if this was discovered, he would lose his deferred compensation plan.

Another agent from a local, well respected insurance agency recently sent an email to a financial planning associate of mine stating his displeasure that the financial planner replaced a few of the agent’s policies.  These were not significant policies in the scheme of the agent’s practice so why did he care?  Because the replaced policies caused him to fall below a certain persistency ratio resulting in a meaningful financial penalty.  I have no ability or interest in judging the insurance agent but the simple fact that the insurance company provides a disincentive to the agent to make changes for the benefit of the client when appropriate is disconcerting.

On another note, I have the agent handbook for this same agency and, while appropriately warning agents about the potential perils of life settlements, allows agents to work with clients on a life settlement transaction when in the best interest of the policy owner.  However, the agents’ understanding from home office and local management is that they will be fired for doing so.

Why?  Largely because the carrier knows that a policy sold to a life settlement company will never lapse and the death benefit will have to be paid.  A significant portion of the life insurance carrier market banded together in an effort to close down the life settlements industry (which I contend is one of the most consumer beneficial strategies ever devised when appropriate and done right) because…. wait for it…. life insurance companies are not fundamentally in business to pay death benefits.  They are in the business of making money (like every other for-profit company on earth) and too many distributions in the form of death benefits are not consistent with the business of making money.  They encourage persistency when policies are profitable understanding that a significant percentage of policies will lapse or be cashed in during or before the high mortality years.  Life settlements throw a wrench in this model.

This reminds me of the comments an insurance agency manager made to me some time ago.  He said; Bill, it’s like walking down a pier.  On one hand you have to keep the policies on the books long enough to make a profit but on the other hand, if too many policies stay on the books, it is unprofitable.  What he was saying to me was that they had to walk a fine line and the carrier had to provide incentives for the agents and policy owners to behave in ways which were the most beneficial to the company.

I get that!  Every company has to have “enlightened self interest” or it will not be in business to provide benefit for clients.  This is how business works.  Carriers provide trips, incentivize agents to write certain products, loosen or restrict underwriting parameters to hit numbers, threaten agents with termination if they do some things and take away money if they don’t do others things and so on.  But let’s call a spade a spade and admit that it is a game rather than fall victim to the flowery rhetoric.  I’ve always thought it is better to understand the game so you can keep from being played.  While I am a big “believer” when it comes to life insurance, I’m also a realist and a bit cynical.  A basic premise of Opportunity Concepts is to advocate for the consumer, educate them and arm them with knowledge needed to make informed decisions.

I’ve had agents and advisors who understood what was really in the best interest of their clients and buck the system.  This sometimes results in extraordinarily secrecy even though they are following a moral compass and not breaking any insurance or investment laws.  They’ll mandate that I only use their home address and personal e-mail and call them on their cell phone for fear of management eavesdropping.  I’ve been handed paperwork under tables at out of the way restaurants and directed to remote parking lots for meetings.  Such is life in the modern age when one truly has a Client First mentality.

As with every business, there are the good, the bad and the ugly.  I work with insurance companies which are forcefully belligerent in their efforts to keep information from their own policy owners and I work with carriers which go out of their way to be helpful.  I have to deal with agents who would sell their own mother for a buck and agents who make decisions for the benefit of their clients with no regards to financial results.

I’ve been criticized for being too critical about what is going on in the market but if you see what my team and I see every single day, you’d understand.  I realize that agents who operate with the highest ethical standards have a burden to bear because of the actions of others  but it is what it is.  If it was a rare occurrence that we ran into these issues it may not be fair to relentlessly attack, but poor policy performance, a general absence of policy management, a lack of product and industry understanding and misleading sales tactics are systemic, not sporadic. A wider understanding of what is going wrong in the industry will make those insurance professionals and insurance carriers who truly have a client first mentality more valuable than ever to the market.

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