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    The glass is half full – of beer!

    I’ve been to more than my fair share of industry conferences over the past six weeks – some sponsored by the Alliance and some sponsored by other industry groups (A.M. Best, LIMRA, the NAIC) – and I’ve come away with some pretty interesting (and overwhelmingly positive) information. Here’s a thumbnail sketch of the key lessons I’ve learned…

    • We are not alone – Not even the biggest and best-capitalized insurers have the solutions to making their organizations, their products, and their delivery systems relevant to the next generation of consumers. This leaves the door wide open for agile, adaptable and innovative competitors (like fraternals!) to grow their share of the market by figuring out how to serve clearly identifiable consumer niches.
    • The link between governance and sustainability – Regulators have figured out that there is a direct link between the quality of an organization’s governance structure and the ability of that organization to sustain itself (and protect its consumers/members) over the long haul. Fraternals that don’t understand this connection and spend their time, energy, and resources fighting to preserve antiquated (and many times self-serving) governance structures, are in for a rough regulatory road ahead.
    • Growth opportunities are almost overwhelming – We’ve all heard that the percentage of consumers who own a life insurance policy is at an all-time low. Which means that there are more folks than ever who need (and, based on all the research I’ve seen, know that they need) our products. Let’s figure out how to go and get them before someone else does!
    • Are you talking to me? – The tried and true life insurance sales process (sold by an agent over the kitchen table, followed by the drawing of various bodily fluids) doesn’t make sense to most younger consumers. They still want professional financial advice (as opposed to being “sold”), but on their own terms and only after they’ve had a chance to do their own research on the financial advisor and his/her organization (generally via the Internet). Fraternals need to have a place where younger consumers can “check them out” – because, believe me, they will.
    • Products vs. education – Most younger consumers, who earn less than previous generations and are saddled with more college tuition debt than any generation in history, can’t afford life insurance, especially whole life insurance. What they need is education and information on how to plan for their financial future, which will likely include life insurance, disability insurance, long-term care insurance, and annuities sometime down the road. Bring them into the fold with the information they are looking for – not the products you’d like to sell.
    • Generation Gap – Boomers (another lucrative pool of prospective fraternal members) want to feel that they are part of a team; Gen X and Y want you to “make them happy as an individual.” Are you and your field force aware of the differences in the way these key demographic groups think and act? One size does NOT fit all.
    • Big Data is a big deal – You don’t need to be a supersized organization to start collecting data on your current membership that can help you unlock the keys to providing them with additional products and services and identifying the characteristics of your best possible prospective members. Some things you might want to know:  email address, income level, children living at home, grown children living outside the home, retirement funding, behavioral patterns (i.e. regular church attendance, membership in other service organizations).
    • Reward member loyalty – I fly on United and stay at Marriotts whenever possible (i.e. when the price is competitive to other vendors) because they reward my loyalty with some terrific benefits. How do you acknowledge and reward your most loyal members?
    • Fraternals are like breweries – As one fraternal CEO recently explained it to me, “I don’t want to be Budweiser, Miller, or Coor’s; I want to be a craft brewery, consistently providing a high quality product that a certain group of consumers will seek out once they know about it. There is plenty of room in the marketplace for the big brewers and the craft brewers – just like there is plenty of room in the marketplace for large commercial insurers and fraternals.”dos-equis-guy

    Stay thirsty, my friends…

    The Fraternal & Communications Mid-Year Meeting: A Restoration of Faith

    This may not ever happen to you, but I occasionally have moments of professional doubt. I wonder if the Alliance’s advocacy, education and information initiatives can really have a positive impact on the future of the fraternal system. I wonder if fraternals can transform the beauty of the cooperative business model to attract the next generation of members. I wonder if doing things “the way we’ve always done them” is leading the entire life insurance industry (not just the fraternal sector) toward a “Napster moment” (that peer-to-peer internet music file sharing service that seriously threatened the music industry). Are we on the verge of an almost overnight transformation of the way our financial products and services are bought and sold that leaves the current players scratching their heads and wondering what hit them?

    And then almost invariably in the darkest of those moments of doubt, I will have a “Saul on the road to Damascus” event that restores my faith in the fraternal system. Such was the case with last week’s Fraternal & Communications Mid-Year Meeting.

    If you attended the meeting, or know someone who did, you understand what I’m talking about.Frat & Comm photo Over 60 fraternal and communications professionals participated in the meeting. Many were first time attendees and many more were “Millennials” – young employees who dream of making a difference in the lives of others. I was thrilled to have no idea who two-thirds of the audience was. I was even more thrilled by the quality of the program that the Fraternal Communications Advisory Council put together – from keynote speakers to hands-on workshops – and by the enthusiasm displayed by all the registrants.

    After each session Advisory Council members would remind folks to jot down not only what they had learned from the presentation, but how they were going to use it in their organizations. The positive energy was contagious – and I want to thank each and every attendee for making the meeting such a terrific success. The Fraternal & Communications event kicked off this season’s Mid-Year Meetings. Next up is Fraternal Operations and Presidents in Savannah, Georgia, later this month; the Canadian Section Annual General Meeting will take place in Niagara-on-the-Lake, Ontario, in mid-May; and the Investment and Actuaries Mid-Year Meetings will be held in Chicago in late May and early June, respectively.

    I urge each of you to find the meeting that best fits your discipline and register today. You’ll gain new insights from the incredible speakers that grace the agendas of each meeting. And, more importantly, you’ll develop connections with a network of fraternal professionals that will serve you and your society for years to come.

    Quote of the Week

    “We’re talking about your future. If we don’t change, you won’t have one.”

    Herb Kelleher, retired CEO of Southwest Airlines, in comments to Southwest employees who want things to be the way they always were.

    NAIC Makes Model Corporate Governance Regulation Applicable to Fraternals

    Earlier this week, at the  National Association of Insurance Commissioners (NAIC) Spring National  Meeting, the Corporate Governance (E) Working Group amended a proposed corporate governance model act to ensure that it applied to fraternal life insurers.  The model act is expected to be adopted at the NAIC’s August 2014 meeting.  From there, it will be up to each state to enact the model.

    The Alliance strongly supported this amendment.  The fact that regulators made a specific revision to the proposal to include fraternals is a clear sign that they understand the important link between corporate governance and organizational sustainability.

    Over the past three years, the Alliance has focused a considerable amount of energy compiling research and conducting educational programs for member societies on “best practices” for corporate governance.  We are proud of the results of this effort.  Thanks to the information and instruction provided by the Alliance, many member societies have taken significant steps to enhance their corporate governance structures – and, in turn, improve their organizations’ financial and fraternal performance. board14

    But as we all know, some fraternal boards and executives have a way of clinging to the past despite all the evidence that changes must be made.  Steadily declining surplus?  Not a problem.  Downward trend in RBC?  We’ll assess the members.  Fewer and fewer members participating in community service events?  Just an anomaly.  Local chapters becoming irrelevant to younger members?  This too shall pass.

    It is for these organizations that the NAIC Corporate Governance Model Act is needed.  Without a regulatory mandate to change, these societies would go to their graves  – and some of them are well on the way there – fighting to maintain the status quo.  And while the status quo may be an effective way – perhaps the only way – for some of the leaders to retain their vice-like grip on control of their organizations, it is certainly not in the best interests of the long-term financial health of the society or its members.

    That’s why in addition to supporting the application of the NAIC Corporate Governance Model Act to fraternals, the Alliance is also supporting legislation in Illinois, SB 3404, which includes a provision that would end the practice of fraternals electing their CEO.  That’s right, among a host of other solvency and governance components, SB 3404 would require fraternal CEOs to be hired by the society’s Board of Directors by January 1, 2019.

    Many Alliance member societies have already made this transition.  And the vast majority of those that haven’t support this provision because they know that without a regulatory requirement to modernize their governance, the very constraints of that structure make it almost impossible for the society to update it on their own.

    Certainly, the requirement to hire rather than elect a CEO cannot guarantee that any society will hire the perfect candidate.  However, it will ensure that the responsibility for making that decision rests where it should: on the shoulders of the Board of Directors.  Moreover, it will greatly enhance the chances of a CEO being hired based on his or her qualifications rather than being elected based on a popularity contest or the quality of the tchotchkes handed out to delegates at a convention.

    And that, my friends, is no April Fool’s Day joke…

    Using Technology to Connect with Your Chapters…And Grow Younger – By Guest Blogger Allison Koppel, American Fraternal Alliance Executive Vice President

    millennial tech

    This week Joe is on the road on Alliance business with stops in Pittsburgh and Springfield, Illinois, among other places. While he is away, I am going to throw my hat into the blogging ring and take a few moments to talk about an exciting new Alliance member benefit designed to modernize how you connect with your chapters.

    Chapters are an important part of any society. They promote and advance your mission and vision to serve both members and the community. But as we all know, maintaining a successful chapter is a difficult task for all those involved. Any chapter should always strive to attract new members, find new community service projects and volunteer opportunities and serve local members in a meaningful way.

    There is no question that maintaining a chapter takes a lot of work and most of it depends on a small group of volunteers to keep things going. But volunteers don’t last forever! What about the future? Some of your best qualified future chapter leaders are convinced that they’re too busy to lead. So the same dedicated generals continue to carry the load. They’re busy too, but feel stuck… they’ve invested too much to see it all fall apart. It’s not as fun as at used to be, but they have the knowledge and experience to make it all work. That’s risky too.

    Koppel_Allison 2008How to recruit new volunteers is an age-old problem. Getting younger people to donate their time can take a chapter to the next level but how will introducing change and doing things in new ways affect your current members?

    Start small! Consider breaking the bigger jobs down into something a strong leader with an already booked life could imagine him/herself doing. Also, introducing new technology can be a lifesaver, especially with all the paperwork that is necessary to keep an active chapter going.

    To assist in this effort, the Alliance has developed a new member benefit called FraternalsGIVE.org. This new program is a perfect example of the Alliance seeing a challenge among all fraternals and creating a solution for it. There’s also an added benefit. Using FraternalsGIVE.org will help the Alliance advocate on behalf of its members because the cumulative data will be so powerful.

    FraternalsGIVE.org is a website designed to capture chapter activity data which will help society home offices streamline communications between headquarters and chapters/lodges. Participating societies can decide which chapters (any or all) want to go primarily “paperless” and start using the FraternalsGIVE.org platform to record all fraternal activity. Home offices will have the ability to run reports by chapter, by state, by date range; chapters will be able to see only their own activity information. The Alliance, as the “super-user”, will have access to all data that creates a powerful supply of local community activities to draw upon when we visit with state and federal lawmakers and regulators to promote the fraternal business model.

    FraternalsGIVE.org is a cost effective way to modernize how you connect with your chapters. For a nominal annual fee of $2,500, societies can add any or all of their chapters to this database so that chapter leaders can report on community service activities, volunteer events, board meetings, chapter donations made to other causes and all of the other important actions of chapters. The investment will seem insignificant once your staff and chapter leaders are relieved of onerous paperwork and data entry. FraternalsGIVE.org is also a great way to attract younger volunteer leaders who are turned off by traditional, manual processes.
    Additional benefits of this new program are:

    FraternalsGIVE.org gives chapters the ability to request matching funds from the society home office and gives societies a better method for reviewing requests.

    • Data that chapters report can be summarized quickly and transferred in their IRS 990 filing, thus supporting the chapter’s and your society’s tax exempt status.

    • The work to find a vendor who understands fraternals is done; the site is tested and ready to be used…saving societies the time and headaches of starting a system from scratch.

    • Simple. Easy. No email necessary to utilize.

    FraternalsGIVE.org is simple to use for both home office fraternal staff and for chapters leaders. And the Alliance will provide training for anyone who needs it! Why not learn more about this exciting and affordable new system by viewing a FREE webinar tutorial?

    Register here for a FREE webinar tutorial being held on:
    Tuesday, April 1, 2014
    11:30 AM-12:15 PM CDT

    I urge you to visit the FraternalsGIVE.org page on the Alliance website to learn more. Providing you with the tools that will help you succeed is part of our mission here at the Alliance. Let us know how we are doing and what you would like to see in the future. Please stay in touch and let us know how we can serve you better.

    No one’s got this figured out yet…

    Earlier this month, I attended the A.M. Best Review and Preview Conference, an annual gathering of hundreds of top executives from some of the world’s largest life, health, and property/casualty insurers and reinsurers. It was the first time I had been invited to attend the event, and I was pleased to see that executives from a couple of Alliance member societies were there, too. Boomers vs MillennialsIt looked and felt like most insurance industry conferences – the audience was overwhelmingly white, overwhelming male, and overwhelming dressed in the “business casual” uniform of blue blazer, open collared dress shirt, and gray or tan slacks. And, with the exception of expanding regulation and unpredictable interest rates, the number one discussion topic for this group of middle-aged, higher income, Anglo-Saxons – including yours truly – was how to make our products and services more relevant to the “middle market” and Generation X, Y, and Millennial consumers. I couldn’t help being struck by the incongruity of it. How in the world were we going to crack that code? Especially when my answer to the question of “What kind of life insurance products do my 30- and 27-year-old sons and their spouses want, and how to they want to purchase them?” was “I have no idea.” But that didn’t stop us from trying. Here is a brief summary of the topics on the mind of virtually every life insurance company executive at the conference:

    • My vote for Quote of the Conference: “Regardless of the regulatory environment or the direction of interest rates, we need to find a way to get our products to people who need them. If we don’t do that, our worries about regulation and interest rates are moot.”
    • No one’s got this figured out. Even the largest, most profitable, and most sophisticated insurers are struggling with the same problems that fraternal life insurers face: relevance, appeal and affordability of our products to younger consumers, ineffective distribution systems, competition from non-traditional sources.
    • The traditional sales model of an agent selling products to consumers in their homes makes no sense to younger consumers. There seems to be universal agreement that multiple distribution channels – agents, on-line, direct mail/call center, retail – are necessary to attract the diversity of consumers needed for insurers to remain sustainable.
    • Investment in technology – from enhanced administrative (back office) systems, to social media (for improved customer experience and affinity relationships), to data analytics (for instant underwriting and to replace the need for applicants to submit blood and urine samples) to Big Data (knowing more about your current customers and using that to find new ones) – is absolutely necessary to streamline operations, control expenses, build customer relationships, and identify new consumers. As one executive told me, “No data, no sales.”
    • In addition to worrying about the next generation of consumers, insurers are concerned about the next generation of products. Some see opportunities for “combination products,” e.g. life insurance and long-term care policies, or life insurance and critical illness policies. Others see opportunities to develop and market “pension replacement” products to younger consumers whose knowledge of pensions died with their parents and who have no faith that Social Security will be there for them when they retire.
    • Many commercial life insurers are finding more success in “emerging markets” like Brazil, India, China, and Africa. Given that the fraternal model only exists in North America, I kept asking myself, “What are our ‘emerging markets?’” I have some ideas on what these might be, but would love to hear your take on them.

    Not surprisingly, all of us aging boomers struggled to shake off applying the “common knowledge” solutions about this business on which we were raised – i.e. life insurance is sold and not bought, agents are the only way our product can be effectively sold, and whole life is better than term – to this new set of problems we’re facing. We are learning through the recent Alliance research that many new consumers come through the door (of an agent, bank, or financial advisor) ready to buy, having tried to thoroughly research their life insurance needs (mainly via information obtained on the web). We know more and more consumers prefer to purchase financial services products on-line. And we know that most young consumers simply can’t afford the whole life products we’d prefer to sell them. This all adds up to insurers being on the cusp of a new type of business – one that could include a much bigger role for fraternals, or one that could leave many societies at the curb. But unless we start to think about this new model from the perspective of our future customers – and soon – the entire industry could end up being a case study for the next generation of MBAs titled “What Went Wrong for the Life Insurance Industry?”

    If this topic is critical to your society, we invite you to attend the Fraternal & Communications Mid-Year Meeting where The American Fraternal Alliance “Under 35” Consumer Research and Mega-Issue Discussion will take place.

    Video Guest Blog – Presidents and Fraternal Operations Mid-Year Meeting Speaker On Fraternal Trends

    It’s been a busy winter here on the blog. I’ve covered topics ranging from the serious issues of tax reform and unclaimed property regulations to the Alliance’s advocacy efforts in Michigan to the world of pop culture with my well-received post on Bob Dylan.  I guess I’ve had a lot to say. (What else is new?) With this post, however,  I am going to take a break and turn the reins over to a member of the Alliance staff.

    Just recently, we were thrilled to announce that Alliance Executive Administrator Andrea Litewski would be moving into the new role of Manager, Education. With the Alliance’s emphasis education, we needed a professional dedicated to planning the many webinars, workshops and programs covering a wide variety of topics that are so beneficial to our members. We knew that, given Andrea’s educational background and proven ability to work with people, she would be a good fit for this position. So to kick-off her first blog post in her new position…take it away Andrea!

    Litewski newThanks Joe! As this edition’s guest blogger, I will try to maintain the high bar that you’ve set for blogging quality.

    As the new Manager, Education for the Alliance, part of my job is to help develop the programming for our Mid-Year and Annual Meetings. Right now, we are in the process of planning and executing eight different educational events that will all take place before the end of June. As you can imagine, due to this schedule of events, things are a little crazy at Alliance Headquarters. The entire “small-but-mighty” staff pitches in and works together to produce these highly successful educational opportunities for our members. In my time with the Alliance, one thing that has always impressed me is the quality of the speakers and content at our meetings.

    This week, I am going to give you a preview of one of these speakers who will be presenting at our upcoming Presidents and Fraternal Operations meetings in Savannah, Heather Hafeman of Strohm Ballweg, LLP. Heather’s presentation, Financial Health of the Fraternal System Report will provide our annual overview of the fiscal “state of the sector.”

    We caught up with Heather recently for a video interview and are pleased to provide that for your viewing pleasure.

    Our first question was: “In your work with fraternals over the past year what trends are you seeing?”

    We then followed-up by asking: “What do you see coming down the road for the fraternal sector?”

    Be sure not to miss Heather’s presentation in Savannah. As our e-mails have been stressing for weeks the 2014 Presidents and Fraternal Operations Mid-Year Meetings are just better together. Plan now to register for both meetings and save $180!

    Click here to register today or here for more information!

    We hope to see you all in Savannah!

    The Only Certainties of Life

    Benjamin Franklin is given credit for coining the phrase that the only certainties in life are death and taxes. While for most of us, (hopefully) death is a long way off, taxes are ever present and last week the U.S. Tax Code once again took center stage. On February 21, 2014, the U.S. House Ways and Means Committee issued draft legislation that would provide the first major overhaul of the U.S. Tax Code since 1986. The proposed “Tax Reform Act of 2014″ would modify a wide range of tax provisions impacting individuals, corporations, partnerships and tax-exempt entities.

    In an  Op-Ed written by Ways and Means Committee Chair, Rep. Dave Camp (R-MI), for The Wall Street Journal, Dave CAmpCamp glibly pointed out that there have been so many changes to the tax code over the past decade that it is now 10 times the size of the Bible, but with none of the Good News. As a Forbes article points out, ironically, given our current Byzantine tax code, even this new proposal for “simplification” stretches to nearly 1,000 pages. Fear not friends, the Alliance is here to cut through the legislative “double speak” and tell you the facts that you need to know.

    As most of you are aware, the Alliance invests an enormous amount of time, energy and effort into working the halls of Congress promoting the value of the fraternal tax exemption. To assist us in this effort, we have a maintained a close working relationship with our lobbying firm, McBee Strategic. Their team is working for us every day on Capitol Hill. In addition, I am in D.C. on a regular basis spreading the fraternal gospel to politicos, staffers, trade groups, etc. and frequently partner with member society CEOs to assist with home district and state appeals on this issue. Lastly, every two years we bring the mountain to Mohammed by holding a lobby day during the Presidents Mid-Year Meeting. We know this issue is important to you and we never let our guard down for a minute.  Moreover, in the past five years we’ve gone from a “lay-low” defensive strategy to a “shout our story from the mountain tops” strategy.

    While the Alliance can’t measure the impact and value of our investment in advocacy the way a company measures profit and loss, it does appear that our hard work has indeed provided us with some “Good News” in the proposal. In short, based on the tax reform draft issued by Chairman Camp last week, our efforts are paying off – mainly because we’re not in it. The folks at McBee have done a preliminary analysis and tell us that, at least on the fraternal exemption, we are in the clear for now. But there are other portions of the legislation that could affect us as financial services organizations. For example, Title V of the proposed legislation addresses proposed changes to current tax provisions impacting tax-exempt entities, and addresses several areas that may be of concern for tax-exempt entities, including:

    • Unrelated business income tax (UBIT) – Subtitle A
    • Penalties – Subtitle B
    • Excise Taxes – Subtitle C
    • Requirements for Organizations Exempt from Tax – Subtitle D

    Click here for a section-by-section summary prepared by Ways and Means Committee staff. (The table of contents lists all the page numbers for the articles. Simply use the scroll bar to navigate to the correct page in the document.)

    We also encourage you to educate yourself on the proposal by taking a look at the articles linked here, here, here and here.

    Unfortunately once you’ve done your homework on this issue, it seems that it might have been an exercise in futility. For better or for worse, the prospects for advancing this proposal are murky at best. A Washington Post editorial calls the proposal “dead on arrival” and scolds that “In a properly functioning Washington, the tax reform plan …would kick off a major debate over how to fix the federal government’s inefficient system of revenue collection.” But the article goes on to point out that, “In the actual Washington, alas, Mr. Camp’s proposal has basically no chance of passage, or even of being acted upon this year. Much of the blame for that belongs with the leaders of his party, who smell victory in the November elections and don’t want to do anything controversial – that might put that prospect at risk.” Additionally, Camp’s tenure as Chair of Ways and Means is up in 2014 and a new chair of the Senate Finance Committee has just been named (Ron Wyden, D-OR). Given these and other obstacles, the fact is that it may be years before we see any action on tax reform.

    In spite of all of the D.C. politics beyond our control, let’s be proud of the fact that our efforts have kept us out the discussion so far. Let’s also pledge to continue working to spread the word to public policy makers by supporting Alliance advocacy efforts.

    If you have any questions or concerns, or if you would like more information on Washington tax reform activities, please feel free to contact the Alliance at any time at info@fraternalalliance.org.


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