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    Living in the Future

    futureDon’t know if you read the article on “the 20 most creative people in insurance” in the July 30 edition of LifeHealthPro.com, but I thought it was fascinating.  It contained interviews with 20 creative thinkers from all aspects of the industry, including some you probably know and some you definitely don’t.  I focused my attention on the final question asked to each of them: “How do you anticipate the industry will evolve in the next ten years?”  Here are my favorite responses:

    • “The modes of distributing products, the very products themselves, and the expectations consumers place on their insurance companies will see large-scale changes in the years ahead.  There are massive opportunities for those willing to…take advantage of those changes.”

    • “Technology will drive change from how policies are created to how they are issued and modified.  We anticipate eventually removing the need for a medical exam altogether.”

    • “The intersection of technology, wealth management, and the fee-based distribution channel is driving the evolution of our industry.  Technology is important, but in the end people still want to talk to people.”

    • “The dramatic revolution in technology will cause commoditization in many areas, including insurance product development.”

    • “There will be a mainstreaming of models that enable self-selecting groups to start their own insurance pools versus buying into traditional insurance companies.”

    • “The successful financial professional will offer more holistic service  focused on relationships, communication, and transition management.  The industry will move away from a focus on sales.”

    • “The way in which clients use insurance products will quickly change. The way in which products are distributed has to change.”

    • “The future for acquiring valuable customers will be created from social discovery services.”

    • “Agents who get on board now with digital marketing strategies will lead the field.”

    • “Consumers will have instant access to insurance products and the industry will become more flexible.”

    • “More virtual underwriting.”

    • “How to use technology to get advisors in front of highly qualified prospects will be the biggest change.”

    Technology, distribution, technology, distribution, technology…  Do you sense a pattern here?  More importantly, do you have the candle power and financial assets to invest in the technology and distribution mechanisms that seem likely to decide the winners and losers in tomorrow’s marketplace?  If not, are you looking for ways to acquire those resources through mergers, acquisitions, partnerships, or strategic alliances?

    Just asking…

    PS: At the Annual Meeting, we’ll be creatively addressing a lot of these futuristic opportunities through our speakers and workshops.  Check it out.

    Is your society a house divided?

    One of the most appealing characteristics of the fraternal model to the younger consumers is our commitment to securing their members’ financial futures while at the same time helping them to improve the quality of life in their communities.

    The notion of a not-for-profit financial services organization that is built to do good things – rather than doing them to be seen as a “good corporate citizen” or to secure a generous tax deduction – is a real bell ringer for Millennials, Gen X’ers, and even Baby Boomers.  And demonstrating the cohesiveness of the connection between fraternal and financial is absolutely critical if these younger consumers are going to be convinced that our business model is authentic.

    I’ve been in meetings with more than a few society management teams and boards, however, where it is clear that the fraternal and financial sides of their operations are not only disconnected, but they compete against one another for the society’s often limited human, technological, and financial resources. Similarly, I have received many annual reports from our members that do not even mention the fraternal side of their operations. This focus on the financial side in a public-facing publication makes it more difficult for the reader to differentiate between a fraternal and a commercial insurance company. Why not celebrate in your annual report how the financial side drives the community service?

    A house divided against itself cannot stand.  I think Abraham Lincoln said that.  House divided
    A fraternal whose community service activities don’t reflect the shared values of the volunteer participants and whose financial services products don’t align with the best interests of the members will quickly become irrelevant to both. I said that.

    The secret to success, it seems to me, is in weaving the fraternal and financial threads of our operations – starting with the home office, extending to the field representatives, and including the local chapter system – so that they form an indistinguishable bond with one common mission. You can’t run a life insurance company and “bolt on” a community service component.  Likewise, you can’t run a charitable organization and “accessorize” it with a financial services company.  Successful fraternals combine both seamlessly.

    Being a fraternal life insurer is much more difficult than being a commercial life insurer.  Fraternal executives and boards have to excel in the financial services arena – from product design and distribution, to customer service, to compliance with increasingly complex regulations, to the technology needed to address each of these functions.  Moreover, they have to excel in the fraternal arena – from finding ways to engage members in meaningful service projects, to identifying worthy causes to fund, to providing members with an array of benefits beyond an insurance policy that helps them live healthy and generous lives.

    If being a fraternal was easy then MetLife, Prudential, and Northwestern Mutual would have signed on to the model long ago.  We’ve all chosen the more difficult path.  But let’s not make it more challenging than it already is by competing within our own societies.  Got a great story about how your society is linking fraternal and financial operations?  Share it here or send it to me in a private email at jannotti@fraternalalliance.org.

    Special Video Guest Blog – If Millennials are the “Golden Ticket” Annual Meeting Speaker Cam Marston Can Show You How to Grab It

    Millennials are well known for using the latest and greatest tools for managing their lives – whether it’s paying and organizing their finances with Venmo, or tracking their daily fitness routines with Fitbit. It’s all about staying innovative, finding easy ways to multitask and seeing immediate benefits. Unfortunately, according to Money Magazine, when it comes to thinking about the long term, millennials are the most underinsured generation alive today.

    goldenticketNow this should come as a surprise to absolutely no one. According to the Alliance’s own “Under 35” Consumer Research Study, most members of our focus group “were burdened with heavy student loan and credit card debt. Discretionary spending was limited as day-to-day expenses kept most living from paycheck to paycheck.”

    Given all of this, why then do insurance companies look to capture this generation as some kind of “Golden Ticket?” The answer is simple…size. At 77 million strong, Millennials are the largest generation since the baby boomers and as the boomers begin to retire and die off, insurers need to replace them with fresh faces from Generation Y. How to accomplish this is proving to be a challenge to all insurers.

    In order to help you with this vexing issue, the Alliance has invited Cam Marston, a leading expert on the impact of generational change and its effects on the marketplace, to share his knowledge with us at the upcoming Annual Meeting. We have asked Cam to provide us with a guest video blog and are thrilled to share it here with you this week.

    I want to thank Cam for taking the time to give us a glimpse of what we can expect to learn in his presentation at this Annual Meeting, held September 10-12, 2015, in convenient Indianapolis. You still have time to register for the event which will also includes seven great, timely workshops and hundreds of your fraternal colleagues from across the country.

    I look forward to seeing you in Indianapolis.

    Special Bonus Guest Blog – What You Should Know About NAIC’s Corporate Governance Disclosure Regulation Mandate

    Litewski new

    Andrea Litewski Manager, Education American Fraternal Alliance

    Good morning and happy Friday! I am taking this opportunity to grab the blogging reins from Joe to give you a brief preview of one of the exciting and important workshops that will be presented at the upcoming 2015 Alliance Annual Meeting in Indianapolis. This session will cover a topic that should be of interest to you all; the NAIC’s Corporate Governance Annual Disclosure Models Act (CGAD).  Last summer, the NAIC adopted a Corporate Governance Annual Disclosure Model Act and supporting Model Regulation, which provides a way for insurance regulators to receive, on an annual basis, additional information on the corporate governance practices of U.S. insurers.

    Under the requirements of the CGAD, U.S. insurers will be required to provide a detailed narrative describing governance practices to their lead state or domestic regulator by June 1st of each year. The narrative will be protected by strict confidentiality measures, which were included to encourage insurers to be open and transparent in describing their governance practices to regulators. Insurers will be allowed some discretion in determining at what level within the organization to report their corporate governance practices, depending upon their structure and organization. The new disclosure requirements will begin in 2016.

    According to Susan Donegan, Commissioner of the Vermont Department of Financial Regulation and Chair of the Corporate Governance Working Group, “The Corporate Governance Annual Disclosure Model Act represents nearly five years of thoughtful discussion and work regarding regulatory guidance that details best practices for the corporate governance of insurers. This model act was developed to promote regulatory oversight as well as protect the confidentiality of the insurer.”

    cj rathbun

    C.J. Rathbun, Senior Consultant at First Consulting & Administration, Inc.

    In order to help you prepare to comply with this new regulation, the Alliance has planned a workshop which will be presented twice at the upcoming Annual Meeting. Our speaker for this session will be C.J. Rathbun, Senior Consultant at First Consulting & Administration, Inc. We recently sat down with C.J. to ask her to provide a preview of the kind of issues that the session will cover. Here’s the result…

    AL) Aren’t fraternals exempt from filing the CGAD report? If not, do they only have to file it with their state of domicile, or will it also need to be filed with the regulators in all states they are licensed and in which they operate? When is the first filing with NAIC due?

    CJR) The requirements for Corporate Governance Reports apply to all insurers, small to large, fraternal to mutual to public companies. We have yet to see if states other than domiciliary states that will ask for copies of the report, so we will see. Depending on when your domiciliary state adopts the model (and all states are expected to do so in the next 18 months or so), the model states June 1 is the annual due date. The first reports were due in June 2016.

    AL) What are regulators hoping to learn from the CGAD filings of insurers?

    C.J.R) Because their only information on the true financial stability of a company has been the Financial Examinations, and even if those are done regularly by a state, it isn’t more than once every three to five years, they want an annual report that gives them a better sense of that stability on an ongoing basis.

    AL) What type of governance structure are regulators looking to see from the CGAD report?

    C.J.R) The structure exactly matches the ORSA ERM structure requirement – suited to the size and structure of your company – even though you may not have been required to submit an ORSA report.

    AL) Do the NAIC CGAD models address what type of board structure an insurer should maintain, and does it provide guidance as to what qualities/characteristics a board member should possess?

    C.J.R) This is one of the key provisions of the CGAD that requires the Board as a whole to be sufficiently experienced and of the integrity to effectively run an insurance company. While the model does not go into more detail, the drafts will inform us of what the regulators were intending to prove the experience and integrity of the Board members.

    I want to thank C.J. for taking the time to give us a glimpse of what we can expect to learn in her session at this Annual Meeting, held September 10-12, 2015, in convenient Indianapolis. You still have time to register for the event which will include this and six other great, timely workshops, great speakers and hundreds of your fraternal colleagues from across the country. Also, if you register today before midnight you still have time to save $100 on the price of your registration. Click here for all the details.

    2015 am temporary banner

    I look forward to seeing all of you in Indy!

    What a Long, Strange Trip It’s Been

    The Grateful Dead played their final three shows in Chicago over the July 4 weekend.  The “Fare Thee Well” concerts were the last ones the four remaining founding members of the band – Bob Weir, Phil Lesh, Mickey Hart, and Bill Kreutzman – will play under the Grateful Dead name.

    dead-fair-thee-well

    What do the Dead and fraternals have in common?  Nothing.  I just happen to love the Dead’s music and am tired of writing and worrying about relevance, regulation, and interest rates in the middle of a glorious summer day.  So, I’m penning a tribute to a band that I’ve seen more than a few times and whose music – particularly the legions of bootleg recordings taped by fans over the last 50 years – has sustained and inspired me in good times and bad.

    So, in no particular order, here are my Top Ten list of Dead tunes – original and covers – that will live on long after the concerts are over:

    • Iko Iko – This cover of a traditional New Orleans classic was on the car stereo when we adopted our first family dog from the local animal shelter.  Of course, that’s what we named the pup…

    • China Cat Sunflower/I Know You Rider – Because you can’t have one without the other, this often played transition never gets old.  My favorite rendition was during a 1982 concert at Red Rocks Amphitheatre outside of Denver.  The crowd went nuts when Jerry Garcia sang, “I’d shine my light through the cool Colorado rain.”

    • El Paso – The Dead covered a host of these long western ballads, many written by the great Marty Robbins, but this by far is my favorite.

    • Sugar Magnolia – A standard, and deservedly so.

    • Truckin’ – Another standard, but I can’t leave it off the list.  My favorite line from the “Europe ‘72” album is: “This next song rose to #1 on the charts in Turlock, CA.  They love us in Turlock, and we love them for that.”

    • Me and Bobby McGee – A great tune covered in a one of a kind way.  Eat your heart out, Janis Joplin…

    • Franklin’s Tower – “Roll away the dew”… I just never get tired of that riff.

    • Wharf Rat – Jerry Garcia in peak form on the “Skull and Roses” version…

    • Friend of the Devil –Weir and Garcia make acoustic guitar magic.

    • Eyes of the World – The classic jam tune for the classic jam band. I’ve seen and heard versions that last 20 minutes or more – and wish they would have gone on longer…Fare the well

    Feel free to add your own favorites here.  Back to business next week…

    Finding The Silver Lining Sometimes Takes Some Gold Reserves

    Based on the title (“U.S. Fraternal Industry Facing Challenging Demographics,”) you might think the recent A.M. Best Special Report paints a gloomy picture of the future of the fraternal business model.  But dig a little deeper and you can see some very positive rays of light for fraternals with the courage and resources to address the challenges facing them – and virtually every life insurer – as outlined by Best’s analysts.

    Silver lining

    While the Special Report focuses on the small handful of societies that maintain a Best rating, its messages are directed at the dozens of smaller societies who struggle to grow their membership and remain relevant to the next generation of consumers.  These major obstacles are compounded by the lack of financial resources to invest in initiatives to address those issues.  The opening sentences of the Report’s conclusion summarizes the situation confronting many of these societies:

    “Fraternals face increased competition, heightened regulatory and technological costs, spread compression, and membership growth challenges.  These trends will likely require smaller societies to merge given their modest resources and the need to achieve economies of scale.”

    The Report is worth reading – and sharing with your management team and board of directors.  Here is a quick overview of some of the key findings:

    • Urbanization – As American cities grow, the population of rural communities where fraternals have traditionally thrived is shrinking.  Internet-based marketing and distribution systems are allowing larger commercial insurers to cost effectively tap into rural markets of middle-income consumers – market segments they have typically ignored – threatening longstanding fraternal strongholds.

    • Aging Demographics – The fraternal population is aging and we’re not bringing in enough younger consumers (and I’m talking 30 and 40-somethings, not millennials) to offset the loss of older members.  That does not add up to longterm sustainability.  ‘Nuf said.

    • Technology – Fraternals need to invest in technology (interactive websites, online distribution options, etc.) to remain relevant to the next generation of consumers and to “leverage data analytics and predictive modeling.”  That means significant capital allocations.  Organizations that can’t afford such investments will be left behind.

    • Strong Retention – On the bright side, fraternals outperform all other industry sectors when it comes to retention rates.  Once an individual becomes a fraternal member and purchases a life insurance policy or annuity, they’re going to stick around a long time.  The potential downside of this characteristic is that many fraternals have sold an abundance of high-yield fixed income annuities that, in an era of prolonged low-yield investments, can increase an organization’s risk profile and constrain access to capital.

    I’d love to hear your thoughts on the Special Report.  Please post a comment here after you’ve had a chance to read it or email me privately at jannotti@fraternalalliance.org.

    Grab Bag…

    Grab bagThis week’s posting is a smorgasbord of tasty treats culled from a variety of news sources.  I wanted to share them with you before they got stale. Enjoy…

    Think fraternals aren’t innovative?  Think again.  Royal Neighbors’ “Promise Plus” was named Most Innovative Product by National Underwriter Life & Health.  Click here to learn more about the product and how it ties in perfectly with Royal Neighbors’ mission of empowering women…

    By 2025 – just 10 short years from now – millennials (the generation born after 1980) will make up 75% of the world’s working population.  No wonder businesses are pulling out all the stops to attract these consumers.  Click here to read a piece written for “Voice” magazine (the official publication of the International Cooperative and Mutual Insurance Federation) by Matthew Crowley of Thrivent Financial on why millennials are so important to the future of your society and how we can make our business model work for them…

    Consolidation among fraternals is happening and will continue to happen.  It’s an inevitable evolution in our sector of the business – a business that requires economies of scale in order to invest in technology, distribution, and product development needed to reach the millennials described in Matthew Crowley’s article.  But consolidation isn’t limited to fraternals. Check out this article outlining the four key reasons nonprofits should consolidate – and some of the major obstacles to consolidation – and see if any of them ring a bell for you…

    The women’s market for life insurance is big, lucrative, and underserved, according to Michael Ross of Cornerstone Financial Group.  And if you remember, the results of the Alliance’s consumer research shows that the fraternal model has an exceptionally well-defined appeal to women.  Are you letting your field force know about this?  Need a copy of the survey results to refresh your memory?  Just email me at jannotti@fraternalalliance.org and we’ll send them to you.

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