May 2006 The Life Settlement Education Gapmarketing for Life Settlement Solutions, said insurance...
Transcript of May 2006 The Life Settlement Education Gapmarketing for Life Settlement Solutions, said insurance...
Exclusive study reveals that what agents know — and whatbrokers and providers teach them — can be a huge factorin determining their involvement in the life settlement industry
The Life Settlement Education GapBy Christina Pellett
L ife settlements can be an attractive and viableoption for senior clients whose insurance needshave changed over the years. Often, a policy
purchased years ago no longer supports a client’s needsas they grow older. It may be outdated. The policyownermay need extra income for medical expenses, other emer-gencies, or more appropriate insurance products, suchas long term care insurance or final expense.
Unfortunately, life settlements seem so new to manyin the industry that many agents and most carriers shyaway from offering the option to clients who need it. It’sa growing industry, one that’s increasingly regulated, withscores of experienced brokers and providers that canguide insurance professionals through the tricky terrainof the secondary life insurance market. But still, only 18percent of agents recently surveyed by the Agent’s SalesJournal, Insurance Marketing magazine’s sisterpublication, have transacted a life settlement. (See Chart1)
It may seem puzzling that fewer than one in five agentshave transacted a life settlement, considering that morethan eight in 10 express an interest in the market: Ofthe more than 600 agents surveyed nationwide, 87percent say they are open to the idea of discussing thelife settlement option with their clients.
But only 52 percent have done so, and 82 percenthave never completed a life settlement transaction. (SeeChart 1) Seventy-three percent say they don’t plan toin the next 12 months, either, despite evidence that theirclients would benefit from life settlements. (See Chart2) More than two-thirds of respondents said they’ve hadclients whose insurance needs have changed over theyears. (See Chart 3a) And almost half of the agentssurveyed said their clients have actually surrendered apolicy – and in surrendering a policy, consumers generallyreceive far less than a life settlement would fetch in the
secondary life insurance market. (Chart 3b)The need is there, and so is the interest. So what’s
holding agents back, and what do they need toconfidently enter this growing industry? And of thosewho have already entered it, how can settlementcompanies, as well as insurance marketing organizationsinvolved in this industry, make agents’ experience abetter one?
Knowledge is powerAgents are fully aware of the advantages of lifesettlements: Those in the industry say the biggestadvantage of offering a life settlement is that they canprovide clients with an additional tool to meet theirfinancial planning needs (62 percent). Only 6 percentsaid commissions were a driving factor, indicating thatbrokers and providers who position themselves asconsumer champions would fare better than those whopromote high commissions. (See Chart 4)
And even those who have not transacted asettlement say the aspect of offering more financialoptions to clients is important to them (71 percent).So why the gap between those who think lifesettlements are a good idea and those who haveactually transacted them?
Not surprising to most industry leaders, inadequatetraining and education is the key obstacle holdingagents back from the life settlement market. Six in 10agents say the reason they’ve never completed a lifesettlement transaction is because they don’t knowenough about them. (See Chart 5) Twenty-ninepercent say this lack of knowledge is the biggestchallenge they face in offering life settlements to theirclients. (See Chart 6) And three-quarters don’t evenknow the regulations that govern the transaction oflife settlements in their own state.
May 2006
Number of Life Settlement Transactions Completed �Chart 1
82%
zero
5%one six – ten
3%8%two – five
2%11 or more
Change in Clients’ Needs? �Chart 3a
69%69%No31%31%
Yes
27%73%No
Yes
Expect to Perform a Life Settlement Within the Next 12 Months �Chart 2
“Obviously, (this is) a signal to the lifesettlement industry that they need to take thetime to do seminars or mailings or, better yet,do one-on-one presentations to teach agentsabout this option,” said B. Andrew Plant ofHabersham Funding, an Atlanta-based lifesettlement provider.
M. Bryan Freeman, Habersham’s president,agreed, but acknowledged there are obstacles.In the end, however, he said they are worthit. “It costs a lot of money. It takes a lot oftime and a lot of resources. Not everybody’sgoing to be able to do it, but those that dowill be winners in the market,” said Freeman,who is in his fourth term as president of theLife Insurance Settlement Association, thelife settlement industry’s most prominent tradeassociation.
But life settlements can be tricky tonavigate. Gregory Schmitt, executive vicepresident and chief operations officer of LifeSettlement Solutions in San Diego, said thatbecause there are so many parties involved inthe life settlement transaction – attorneys,trust companies, investors, and, of course,clients – that agents must be well-versed whenrecommending life settlements to clients.
Agents should also have a broad knowledgeof the other aspects of life settlements, suchas how the client can use their payout oncethe transaction is complete. Knowing aboutmore appropriate and modern insurancepolicies, annuities, long term care, and otherinsurance products can help the agent notonly guide their client toward an appropriatedecision, but also help them sell otherproducts using the money from a lifesettlement.
Producers themselves agree that trainingand education is key: Of those who havebeen holding back, a full 48 percent saytraining and education would be the biggesthelp in completing a life settlementtransaction. And of agents who have alreadyentered the industry, 20 percent say moreeffective training would help them do theirjobs better.
Agents believe consumers need education,as well. Agents from both in and outside theindustry say increased consumer awareness oflife settlements would be a big help in makingthem more comfortable with the industry –20 percent of those who have not completeda transaction and 33 percent of those whohave. (See Charts 7a and 7b, respectively)
Freeman agreed that consumerawareness is essential, mainly because ifclients know more about life settlements,
May 2006
Clients Surrendered Policy? �Chart 3b
No
Yes46%
54%
Advantages of Offering Life Settlements �Chart 4
62%
25%
6% 5% 2%
Providing clients with an additional tool to meet their financial planning needs
Cross-selling opportunity for other insurance and financial products
Additional commission income
Door-opener to prospect for new business
Ease of sales process
Reasons for Not Planning a Life Settlement Transaction �Chart 5
60%
23%
12% 10% 9%6%
3%
Based on respondents who do not plan to complete a life settlement transaction within the next 12 months
I do not know enough about life settlements
Life settlements would not be appropriate for my current clients
I have heard negative things about life settlements
I think life settlements are a bad idea
Other
Prohibited by company or broker-dealer affiliation
I had a negative experience with life settlements
they’ll become more comfortable with theprocess and may seek more informationfrom their advisors.
“Increased consumer awareness would helpeverybody,” Freeman said. “But increasedconsumer awareness is coming. We’re on theprecipice of something bigger than it’s everbeen.”
Negative impressions lingerAnother reason why agents have nevertransacted a life settlement is due to negativeimpressions: When asked for the No. 1 reasonwhy they’ve never completed a life settlement,one-quarter of producers surveyed said eitherthey think life settlements are a bad idea (10percent), they have heard negative thingsabout life settlements (12 percent), or theyhave had negative experiences themselves (3percent). (See Chart 5)
Life settlements evolved from viaticalsettlements, which were introduced around1989. Viaticals were originally offered toAIDS and HIV patients who, because of theirshort life expectancy, had life insurancepolicies that could be put to better use. In the1990s, however, some took advantage of themarket and of policyholders, tainting settle-ments even a decade and a half later.
“Unfortunately in the old viatical days, wehad some problems as an industry, and thoseneeded to be cleaned up, and they have been,”said Freeman. Misinformation has scaredagents away from life settlements, he said, andonly with proper training and education canthese negative impressions be dispersed.
A handful of agents (6 percent) alsoindicated that their broker-dealer prohibitsthem from transacting life settlements. (SeeChart 5) “A lapse is profitable,” said DougHead, executive director of LISA, referringto the insurance company’s perspective.“Surrender is profitable. A settlement meansthat the policy stays in force.” That, saidHead, is not profitable since a death benefitcosts so much more than a lapse orsurrender.
But Kurt Gillhaus, vice president ofmarketing for Life Settlement Solutions,said insurance companies and lifesettlement providers and brokers actuallyhave more in common than some maythink – in fact, the insurance industry canbenefit greatly from the existence of asecondary market.
“The transaction (of life settlements)enhances the value of that product ifconsumers know they have more options
May 2006
29%
26%
11%9%
7%
4% 3% 3% 2% 2% 2% 1% 0%
Biggest Challenges of Presenting Life Settlements �Chart 6
I don't understand life settlements
Finding prospects
Ensuring clients don’t give up needed life insurance
Clients’ lack of awareness regarding life settlements
Other
Clients’ negative perceptions of life settlements
Potential that clients could get ripped off
Selecting the right settlement broker to partner with
Process is complicated and/or lengthy
Prohibited by company or broker-dealer affiliation
Limited support
Getting competitive bids on the policy
High transaction costs
Biggest Help in the Completion of a Life Settlement �Chart 7aBased upon those who have not completed life settlement transactions
48%
20%20%
18%18%18% 99% 5%
Additional training/education
Heightened consumer awareness about life setlements
Effective marketing material/point-of-sales tool
Other
Assistance with the transaction process
down the road,” said Gillhaus, suggesting thatclients may be more apt to purchase lifeinsurance policies in the first place if theyknow there’s an option for them in the future.
The importance of marketingFor those producers who are already activein the life settlement industry, the No. 1thing producers said would help them dotheir jobs better is effective marketingmaterials and point-of-sale tools (36percent). (See Chart 7 a and b) MarleneFrith, marketing director of AdvancedSettlements in Orlando, FL, said marketingtools are essential when the agent is in thefield. Her firm, like others, provides agentswith case summaries that can help themdiscern when a life settlement would beappropriate for the client. It both educatesthem, she said, and helps them explain to aclient why they should choose lifesettlements over surrendering the policy orallowing it to lapse.
Gillhaus agreed, saying that mark-eting materials and point of sale toolsserve a dual purpose. “Agents are alwayslooking for pre-built, pre-approvedmaterials,” he said. “It shows them anoptimal approach to use with customers,and once you determine it’s appropriate,you have presentations designed to makeclients comfortable with all aspects ofthe transaction.
“Also, a lot of them get a hold of thesematerials and use them as educationalmaterials for themselves,” he continued.“It really gives them an idea of casestudies and lets them get comfortableuntil they can get a real comfort and feelfor settlement transactions.”
Broker or provider?As for whether agents in the industry go witha broker or a provider it appears to be apersonal choice, one driven by circumstanceand knowledge, according to Head. Helikened it to choosing between selling a houseby owner or through a broker. “Brokers havean understanding of the marketplace thatcan be helpful,” Head said. “If you godirectly to a provider, you may cut out thebroker fee and make out better.”
Of agents who use a broker, they alsosay the broker’s experience and expertiseare the most important factors in theirdecision (31 percent). Plus, a broker canobtain multiple bids, giving the policy-owner the most competitive prices for their
May 2006
Biggest Help in the Completion of Life Settlement Transactions �Chart 7b
Effective marketing material/point-of-sales tools
Heightenedconsumer awareness about life settlements
Additionaltraining/education
Assistance withthe transactionprocess
Other
Based upon those who have completed at least one life settlement transactionp p
36%36%36%33%33%33%
20%
7%7%7%5%
31%31%31% 30%30%
14%14%14%
66%8%
4%%66%
Expertise/Experience
Ability to obtain multiple bids to get policyowner the most competitive prices
Sales and marketing support
Other
Staying compliant withstate regulations
Assistance completing the transaction process
Not sure
Perceived Advantage of Working with a Settlement Broker�Chart 8a
Perceived Advantage of Working with a Settlement Provider �Chart 8b
25% 24%24%24%
18%
10%10%10%
7%7%6% 5%
Expertise/Experience
Ability to work directly with a known provider
Takes the middlemanout of the transaction
Sales and marketing support
Staying compliant withstate regulations
Assistance completing the transaction process
Other
Not sure
None
3%3%3%2%%
policy (30 percent). (See Chart 8a)Agents say the biggest advantage that
providers offer is experience and expertise(25 percent), along with the ability towork directly with a known provider (24percent). They also say providers take outthe middleman, giving them highercommissions overall (18 percent). (SeeChart 8b)
But as much as they appreciate theexpertise of their broker or provider, only12 percent say the life settlement industryis the most helpful source of informationon life settlements, and 6 percent say theirinsurance wholesaler or broker is their bestsource. Yet 48 percent say trade pub-lications are their best source, highlightingthe need for more industry exposure in thisarea. (See Chart 9)
“With an open mind”In the end, those who take the time toproperly educate agents on life settlementswill be the ones who encourage the mostagents to enter the marketplace. Though acombination of factors has so far led manyagents to eschew the secondary market forlife insurance, those factors all tie back toone common denominator: education.
“The education of life settlements … isreally what’s going to need to take place tomove the industry forward,” said Frith.
Perhaps if carriers knew that lifesettlements could actually encourageclients to purchase policies in the firstplace, said Gillhaus, they wouldn’t be soquick to discourage agents fromconducting life settlements. Or if agentswere trained in the regulations andtechnicalities of life settlements, theywouldn’t be hesitant to enter amarketplace where their knowledge levelis so low.
And negative impressions can be quelledas agents learn how the industry isincreasingly regulated today and what theiroptions are for legal and compliancebackup. It may be viewed as an emergingindustry to many, said Gilhaus, but it’sanything but. The life settlement industryhas matured, he said, and agents need toknow this to be encouraged to enter themarketplace.
Freeman agreed. “I think when agentslook at this with an open mind and aneducated mind and look at what’s reallygoing on, they’ll see that (life settlementsare) a good thing, and it’s something their
May 2006
Most Helpful Source of Information on Life Settlements �Chart 9
49%
12%12%12%
7%7%7% 7%7%7% 6%6%6% 6%6%6% 6%6%6% 6%6%6%
1%1%%%
Trade publications
Life settlement industry
Continuing education
Internet
Colleagues
Other
Insurance wholesaler/broker
Seminars
Trade show/industry conferences
client deserves to know about,” Freemansaid. “It can be argued that they owe theirclient a fiduciary duty to do this.”
Christina Pellett is a frequent contributor toInsurance Marketing magazine and managingeditor of its sister publication, the Agent’s SalesJournal. She can be reached at 800-933-9449Ext. 226 or [email protected]
May 2006