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CONSULTING Group

Strategies

Life Insurance resources to provide objective Information to drive informed decisions​.

The Problem

While we don’t want to give the impression that the sky is falling for every life insurance policy out there, it’s a documented fact that most policies are underperforming the assumptions on which decisions were made and the policies procured. There is little understanding that the traditional guarantees of yesteryear have largely been replaced by computer modeling that assumes static crediting and expense charges when these variables are quite dynamic. This doesn’t mean that most policies will fail, but it does mean that a majority of policies will pan out differently than expected. Even modern guaranteed policies need attention and are often misunderstood. In fact, life insurance may be the largest unmanaged asset class in the market.

Most people understand that if changing markets reduce the return on their retirement assets, they won’t end up with the account balances they expected and their retirement dreams are at risk. Accordingly, you must periodically review assets, rebalance portfolios and adjust risk tolerances. But this is what most policy owners fail to do. The bad news is that policy owners and their advisors are discovering the hard way that many policies on which they depend for family, business and estate security are collapsing and will never pay a death benefit without a substantial infusion of capital or an alternate reengineering of the policy due to significant changes in financial markets and lack of policy management. If even a policy with an annually paid premium and an increasing cash value may not have a life expectancy greater than the insured, is there anything one can take for granted?

There is nothing inherently right or wrong about whole life, universal life, variable life, term or any variation thereof. Each class of life insurance has strengths and weaknesses and individual situations and goals should determine which is most appropriate, not institutional indoctrination. However, each type of insurance needs to be managed and market forces have affected all life insurance.

When life insurance assets are not properly acquired and managed, clients are not getting what they paid for and their perception of the transaction and reality may diverge considerably. With a clear understanding of the market and a progressive, nuanced, methodical approach versus traditional insurance practices, policy owners and advisors can make purposeful, deliberate decisions and more easily maximize return on invested capital.

The Process

Life insurance consulting and policy management involves in-depth financial analysis of policy performance relative to original assumptions and systematic benchmarking against market alternatives. It’s about understanding the changing goals and risk tolerances of clients and managing them against the constantly shifting financial markets, dynamic product offerings, underwriting advancements and inconsistent policy performance. 

Given the nature of life insurance sales and marketing, it’s all but impossible for most advisors to view in-force ledgers or competing proposals for new policies and come away with any kind of meaningful conclusion about which is “best”. But it is possible to navigate the market and make decisions based on black and white, empirical data, free from the inherent emotion and spin of the traditional sales process… from an expert who doesn’t have a horse in the race. Policy owners deserve to be in charge, to own their information, to be in control of how, when and to whom it is presented and to engage with an advocate who independently negotiates on their behalf. 

This process needs to incorporate the best tools, independent analysis, modeling and testing the market offers; tools and ideas traditionally foreign to the world of life insurance. Because no one can be all things to all people, even in a narrowly defined niche, it makes it more important to thoroughly understand the market and know when to bring the tools which are a result of one’s own intellectual capital to the process and when to look to the furthest corners of the industry to employ specialists and tools applicable to the given engagement. 

In other words, life insurance can and should be acquired, analyzed and managed in an actuarially defensible manner like a financial analyst would approach the investment market. 

This doesn’t mean every situation needs the highest end work available. Sometimes relatively superficial analyses or even knee jerk responses are appropriate. No matter how experienced we are, we are always seeing something for the first time, but after thousands of transactions, you simply don’t have to start at square one every time. The awareness to quickly understand the lay of the land and bring the most appropriate level of consulting to bear to keep from unnecessarily driving up the cost of solutions is exceedingly important.

The Potential

Policy maintenance doesn’t cut it anymore. Ongoing and active professional policy management can protect against a wide variety of potential policy disasters, assure policy stability and gain maximum efficiency of committed resources. This can result in meaningful savings and/or increased benefits both short term and over the life of the policy as well as highlight problems which may otherwise not be evident until it is too late for solutions to be effective. 

The insurance market is very niche oriented and it is important for an independent professional to bring to the table an unbiased account of insurance strategies, market philosophies, product options and carrier choices. 

It’s not just about identifying and rescuing failing policies; it’s about optimizing resources and maximizing the performance of any policy or portfolio of policies. It rarely enters the consciousness that policies could be obtained and managed differently but most life insurance contracts include property rights which are seldom utilized. When something goes wrong involving long term finances, the reality of time value of money compounds small issues into potentially insurmountable issues relatively quickly. Regularly performing policy reviews and audits consistently highlights issues otherwise not apparent to policy owners and advisors. If identified in time, the solutions can be somewhat painless. Other times the price tag is so steep the entire plan needs to be scrapped and rebuilt. Some solutions are complex and involved while others are so unimaginably simplistic it’s hard to understand how such an easy fix could have been left undiscovered for so long. 

While this isn’t simplistic stuff, it isn’t rocket science either. But when you have a thorough understanding of what is going on out there and a passion for making it right, it makes it easier and more rewarding to get the comments from clients like “for the first time in my life, in actually understand this” and “I’ve been working for a couple of years on this and have spoken with a dozen people and you are the first one who can coherently answer my questions”.

By working with an independent specialist, savvy policy owners and advisors can take advantage of these seldom used privileges, sometimes increasing returns on transactions by a couple hundred basis points. After all, successful people have become that way through a habit of paying attention and making astute decisions. Why not continue that track record when it comes to life insurance?