Life Insurance Agents Can Protect Themselves While Protecting Others

I doubt there’s ever been a time when life insurance agents needed to be more up to speed on what’s happening on the broad front of regulation, suitability and best interest. And, it’s critical that agents be able to read between the lines of what’s said about those topics to tell whether they’re looking at guidance or marketing. The former sets forth the particular rule or required practice and tells you what’s actually required to comply. The latter tells you why you need someone’s products or services to help you understand and comply with the rules. I haven’t seen much of the latter that I’ve found helpful.

A Conversation with an Agent

As an insurance professional, you’re in the business of offering protection to your clients against some of life’s most significant risks. But who’s protecting you against the significant risks you face in your practice, particularly those risks associated with the ever evolving governance associated with suitability and best interest? Who do you turn to for guidance on how this ever evolving governance influences the way you go to market, present your products and services, build and maintain your files and, generally, protect yourself from parties known and maybe even unknown?

That last one’s important, because whatever isn’t addressed by the regulators will be addressed by the litigators, especially in the advanced markets where there’ll be more money involved. I believe that plaintiffs’ attorneys will find life insurance, speaking broadly, to be a more targeted rich field than ever before. And many in your industry are making it easy for the litigators by illuminating those targets with very public spats over products, illustrations, sales practices and so on.

Risk Management Plan

I suggest that one of the most important things that you can do in 2024 is to build a process designed to provide all-weather protection against claims that you acted in your best interests and not in the best interests of your clients. I use the term “all-weather” to refer to a process that can help provide protection regardless of whatever regulation and practice guidance develops or targets litigators.

With that, I’m going to suggest an exercise that might challenge your current business and risk management model. If, as we go through this, you sense any deficiencies in your process or presentation, put them on your to-do list. By the way, this is a great exercise to do with a study group.

Three Prospects, One Unifying Principle

You’re working with three prospects. One is buying life insurance for basic family security, meaning death benefit. Another is buying a policy to generate retirement income in 15-20 years. Still another is purchasing for estate liquidity with plans to house the policy in an irrevocable life insurance trust (ILIT) and lend the premiums to the ILIT in a loan regime split-dollar arrangement. That should about cover the waterfront of prototypical reasons that individuals buy life insurance and the planning contexts in which they’ll deploy their policies. Incidentally, we’ll assume that in all cases, the prospect’s relevant personal and financial information has been duly gathered and the need for the insurance itself has been firmly established. The focus is squarely on the product recommendation.

In each scenario, the mission at the end of the day is for you to be able to say, “This type of product aligns well with your needs, means, objectives, concerns and priorities because it has the characteristics you noted as being important to you, namely (list those characteristics). I designed the product and mapped out a funding pattern in line with your intended use of the policy, namely (identify the intended use).” You close with, “I’m recommending this particular product from this particular carrier because, based on my research and analytical screening, it’s as credibly good as or better than anything else that is available to you.”

Building Your Process

Taking each scenario one at a time, tell me what you’d typically ask the prospect (or an advisor, if applicable) and what you’d have to educate them about to identify the type of product that’s suitable for this prospect and their intended use of the policy. For example, based on your experience, if a prospect was purchasing insurance to protect their family, what would you ask them and what would you want to confirm to be able to accomplish the above mission? Now do the same for each of the other scenarios. Are you confident that if a knowledgeable third-party were to read a transcript of your fact-finding conversation with each prospect, they’d see a clearly illuminated path from the prospect’s profile to your recommendation? If not, what’s missing?

Product Agnostic?

You know that this is more than a simple exercise. So do the regulators and the litigators. It’s the first of several litmus tests of your credibility and objectivity. If you’re “product agnostic,” meaning that you’ll sell whatever type of product surfaces from your fact-finding process as the most suitable for the prospect and their intended use of the policy, you’ll have little trouble with this litmus test.

But if you’re not product agnostic and you’ll sell only certain types of products or maybe even just one type of product regardless of what you know about the prospect’s profile and intended use of the policy, you’ll probably have to retake the test. The same might be true if again, regardless of the prospect’s profile or intended use of the policy, you’ll only sell the products of one carrier, unless underwriting or policy issue guidelines take you in a different direction.

The point, say the regulator and the litigator, is that the product agnostic agent will conduct the kind of thorough, incisive exploration of the prospect’s facts, circumstances, experience and “life insurance state of mind” that will illuminate a path to a product that’s suitable and in the prospect’s best interest, or whatever their standard may be. That agent will be happy to show how they talked about and used illustrations to depict what policy features such as premium flexibility and guarantees, respectively, bring to or take away from the table. Or, how they talk with that retirement income-oriented prospect (and maybe that split-dollar prospect) about the importance of efficient cash value accumulation and distribution in concert with a policy’s design flexibility, and why certain policies offer that efficiency while others don’ t. Or, how, they talk about the pros and cons of a policyholder’s having permissible control over the investment of the cash value and the ways and means by which certain products offer that control. And, of course, they’ll clearly demonstrate how, in each scenario, they were guided by the prospect’s definition of risk, not their own.

On the other hand, the agent who’s not product agnostic, who for their own reasons needs to steer the prospect to a certain type of product, maybe even from a certain carrier, regardless of whether that product falls inside or outside the nine dots of the prospect’s profile and their intended use of the policy, will likely be reluctant to take the prospect down an exploratory path that might possibly lead to where the agent doesn’t want to go. That agent may appear to start down the path, but then take an early exit or pretend it’s a cul-de-sac. Their questions, if asked at all, will be shaped and shaded and the responses interpreted, so that all roads will lead to the product they want to sell, designed as they want to design it and, so important, conforming to their definition of risk , not the prospect’s. I wrote about this in “Life Insurance Policy Themes for 2023,” and still wonder how the regulators will address it. I know how the litigators will use it. And I know how knowledgeable, product agnostic agents will use it to their advantage in competitive cases.

In all fairness and practicality, most prospects won’t know which route you’re taking, meaning the route to the right product for them or the right product for you. In the short term, you may be fine. But if the objective is to build an all-weather process that will stand up to scrutiny under whatever regulation takes shape or any litigation that flows therefrom, it’s a house that won’t stand.

Presenting a Product

We’re now at that point in the conversation where you present your recommendation of a specific product. As you’d expect, they ask you a simple question, “Okay, why this one?” Needless to say, you’d better have your story ready about how all the services, support, market research and access and analytical tools to assess a product’s cost efficiency and durability under stress, support the particular recommendation. In fact, you’d be delighted to share the research and analysis that supports your recommendations. Right?

Incidentally, I assume you’re too smart to start your product presentation with something like, “It all begins with the right carrier, a strong carrier that I trust.” We both know that it doesn’t start with the carrier, any more than the choice of a refrigerator should start with the manufacturer before even considering the layout and dimensions of the kitchen, After all, just because a manufacturer is well-known doesn’t meaning that it offers the most suitable product for a given consumer.

Presenting a Carriers

You know they’ll ask you about the carrier, for no other reason than they’d like to avoid being with a carrier that they might outlive. But you know the drill here, though there may be a couple of extra bits that you’ll need to complete the project these days. Will you be ready when they ask you, “When and to what extent does a carrier’s record and reputation for policyholder service and treatment of old policyholders factor into your assessment? Can you give examples of well-rated carriers that you won’t present because of issues with policyholder service and/or treatment of existing policyholders? What other factors might cause you to shy away from an otherwise well-rated carrier?” A strong, well reasoned response here suggests that you’re a student of the business who takes a critical thinker’s approach to their craft. A weak response or, worse, none at all, suggests otherwise.

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