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Sales of annuity products hit record highs throughout 2023 and ended the year riding a wave strong enough to raise expectations for 2024 and beyond.

Favorable economic conditions is the biggest factor leading LIMRA to project strong growth for annuity sales going forward.

Annuity sellers offer unique products to match differing economic trends. For example, registered indexed-linked annuities [RILAs] are perfect for a strong market that still contains some volatility.

“Despite the slight decline in the S&P in the third quarter (down 3.3%), the market remains up more than 13% for the year with expectations of steady growth through 2024,” said Todd Giesing, assistant vice president, LIMRA Annuity Research. “Interest rates are expected to fall in early 2024, dampening demand for risk-free solutions, such as fixed-rate deferred and fixed indexed annuities. This shift in interest rates will benefit RILA sales as investors lean in on solutions that have greater upside potential while protecting against a possible downturn.”

RILAs are a tax-deferred long-term savings option that limit exposure to downside risk and provide the opportunity for growth, usually through a market index. The products offer more growth potential than a fixed-indexed annuity, but less potential return and less risk than a variable annuity.

LIMRA: strong demand fuels sales

Demographic shifts and greater consumer demand for lifetime retirement income and investment protection helped to propel annuity sales growth over the past two years. LIMRA is projecting sales to exceed $350 billion for 2023, largely based on strong fixed annuity sales.

“The two years of record annuity sales were fueled by the enormous growth in the fixed annuity market,” LIMRA explained in a December column. “This growth was driven by rising interest rates, which more than tripled over the past 18 months and allowed carriers to raise their crediting rates.”

Meanwhile, market volatility prompted growing demand for products that offer investment protection. LIMRA forecasts that demand for protection products will continue over the next few years.

In mid-December, the Federal Reserve signaled that they expect to make three rate cuts in 2024. The forecast for the 10-year Treasury rate is to remain around 4% through 2026. This slight decline will dampen sales growth in 2024, particularly for income annuity products and fixed-rate deferred products, LIMRA said.

Countering this is the turnaround in the equity markets and the expectation is annuity sales will rebound in 2025, the association added.

Overall, LIMRA is forecasting annuity sales to total between $311 billion and $331 billion in 2024. Much of the variance depends on how interest rates play out. As interest rates recover in 2025, sales of indexed annuities and income annuities are expected to return to or exceed the levels set in 2023, with total sales growing as much as 10% and ranging from $342 billion to $362 billion.

Individual product forecasts

LIMRA recently released the following forecasts for individual annuity product lines:

Fixed-rate deferred annuities will face growing competition from bank CDs and cash equivalent solutions as short duration rates improve. While FRD sales will be considerably lower (down as much as 30%) than the record high sales set in 2023, FRD sales will likely exceed $100 billion in 2024 and 2025.

Fixed indexed annuities will be hampered by the pullback in interest rates, and as crediting rates decline, the demand for protection-based solutions will slow in 2024 and 2025. Despite the expected nominal decline of FIA sales in 2024, sales of this product will remain historically strong and are forecast to reach nearly $100 billion in 2025.

Income annuity sales, although dampened in 2024 by declining interest rates, will benefit from the more than 3 million Americans reaching the typical age range when single premium immediate annuities are purchased over the next two years. LIMRA is predicting income annuity sales to top $15 billion in 2024 and set a new record in 2025 — above $18 billion.

Registered index-linked annuities will also have a strong year as steady equity market growth and lower interest rates make the value proposition of RILAs particularly attractive. In 2024 and 2025, LIMRA is forecasting RILA products to expand on the five consecutive years of record sales. RILA sales are likely to be as high as $52 billion in 2024 and $57 billion in 2025.

Traditional variable annuities should benefit from a growing equity market over the next two years, but regulatory headwinds may counter the sales growth potential. LIMRA predicts traditional VA sales to grow as much as 10% to $60 billion in 2024 and increase as much as 8% to $65 billion in 2025.

InsuranceNewsNet Senior Editor John Hilton covered business and other beats in more than 20 years of daily journalism. John may be reached at john.hilton@innfeedback.com. Follow him on Twitter @INNJohnH.

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A class-action lawsuit accusing State Farm of “a fraudulent scheme” to undervalue vehicle loss assessments can continue, a federal judge ruled last week.

Judge Virginia M. Kendall denied State Farm’s motion to dismiss the lawsuit filed in U.S District Court for the Northern District of Illinois.

Twenty-seven plaintiffs from 26 states all totaled vehicles in accidents and submitted claims to State Farm, according to court documents.

State Farm asked the court to dismiss 26 non-Illinois plaintiffs’ claims under the Illinois Consumer Fraud and Deceptive Business Practices Act. Kendall denied that request. The judge agreed, however, that the Federal Arbitration Act requires Minnesota plaintiff Sabrina Capers to take her contract breach accusations to arbitration before she can litigate the claims made in the lawsuit.

‘Not based on any market realities’

In calculating the actual cash value of the plaintiffs’ totaled vehicles, the lawsuit claims State Farm applied a “typical-negotiation adjustment,” which reduced plaintiffs’ total-loss payments.

“Defendant’s third-party vendor identifies the price of comparable vehicles listed for sale in the relevant market,” the complaint reads. “After the vendor determines the value of the comparable vehicles, Defendant’s vendor applies an arbitrary and baseless flat-rate adjustment to the value of each ‘comparable vehicle,’ which Defendant and its vendor call a ‘typical negotiation’ adjustment.”

The typical negotiation adjustment “is not based on any negotiations, typical or otherwise, and is not based on any market realities,” the lawsuit states. The adjustment ranges from 4%-11% of the value of the “comparable vehicle.”

“The vehicles with lesser value are subject to a greater percentage reduction, with the percentage adjustment becoming lower as the value of the ‘comparable vehicles’ increases,” the complaint reads. “This percentage reduction artificially reduces the total-loss payment for the totaled vehicle and, with the sliding percentage scale, ensures that every total loss payment Defendant makes to insureds is significantly, but unconscionably, reduced.”

Plaintiffs note that State Farm does not apply the adjustment in California because it was sued there in 2008 and agreed to stop the practice.

Complaint: Arbitration a key tool for State Farm

A provision of the State Farm policy in question requires the parties to submit to an appraisal if there is a disagreement over the value of the vehicle, the complain states, calling it “an integral part of the defendant’s fraudulent scheme.”

“Since the amount by which the insureds’ total-loss claims are underpaid is likely less (or only marginally greater) than the cost of the appraisal, Defendant knows and intends that the insureds will forego the appraisal process and accept the artificially determined loss-payment for their total-loss claims,” the lawsuit reads. “As designed by Defendant, the appraisal provision prevents Plaintiffs and the Class from effectively vindicating their rights under the Policy.”

The dispute is not about the actual cash value, plaintiffs say in the lawsuit, filed in March 2022.

“This case challenges Defendant’s systematic and fraudulent scheme to misvalue insureds’ vehicles that are declared a total loss in a manner which does not comport with representations made by Defendant or obligations undertaken by Defendant in its Policy, in order to illegally increase its own profits,” the lawsuit reads. “This is an issue that cannot be resolved through an appraisal process.”

InsuranceNewsNet Senior Editor John Hilton covered business and other beats in more than 20 years of daily journalism. John may be reached at john.hilton@innfeedback.com. Follow him on Twitter @INNJohnH.

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Artificial intelligence is developing at lightning speed, so much so that Victor Winter included a “breaking news” alert in the middle of his recent presentation to the National Association of Insurance Commissioners.

Winter is a computer science professor at the University of Nebraska-Omaha. He updated the Innovation, Cybersecurity, and Technology Committee on generative AI during the NAIC fall meeting Dec. 1.

“As a computer scientist, I am used to things happening quickly,” Winter said, “but this is completely off the charts how quickly this is happening.”

Generative AI in particular holds promise for across-the-board applications for the insurance industry. Advances in AI are expected to have “far-reaching implications for the global enterprise software, healthcare and financial services industries,” according to a report from Goldman Sachs Research.

Nvidia, a computer chip giant and AI leader, has predicted “that the impact of AI adoption could be greater than the inventions of the internet, mobile broadband and the smartphone combined,” Winter told regulators.

‘A much more concentrated focus’

The venerable New York Life has been around since 1845 and is one of the largest life insurers in the world. It didn’t get that way by ignoring trends such as AI. Alex Cook is senior vice president and head of strategic capabilities at New York Life and overseeing the insurer’s exploration of AI.

“In March of this year we launched a much more concentrated focus on generative AI and that’s something that I’ve been spearheading,” Cook said. “It was very clear at that point that generative AI was a game changer in the ability to really start to work much more constructively with unstructured data, not just structured data.”

In October, New York Life added industry veteran Don Vu as senior vice president and chief data and analytics officer. Vu is leading a newly formed AI and data team “with responsibility for AI, data, and insights capabilities and aligning data architecture with business architecture in support of the company’s business strategy and objectives,” the insurer said in a news release.

New York Life is employing both “top-down” and “bottom-up” approaches to exploring how it can utilize AI, Cook explained.

The company is focusing “on the opportunities where there’s not only a good degree of value that we think we can drive, but it’s also feasible. This includes areas were we have the relevant data, where the application doesn’t have too much risk associated with it, and where we think it’s doable,” he added

For now, New York Life is using AI in ways most insurers are – for marketing efforts, to help making call center representatives and agents more productive, as well as in underwriting and predictive modeling. Generative AI can find a form or an answer to a policyholder question much faster than by traditional means, Cook noted.

AI has limitations

There are limitations to what AI can do, Cook noted, and it’s best to not force things.

“It’s easy to say, ‘Hey, we have a great new tool, let’s use it for everything,'” he said. “I think there are a lot of cases where it’s maybe not the best tool.”

Despite its legacy image, New York Life is being very open minded and proactive about educating employees on AI and generative AI, Cook said.

“There’s only so long you’ll be able to stiff arm it,” he said. “These kinds of capabilities are going to be quickly embedded in so many of the tools that we use, so better that we train people and educate them on how to use them, how to use them well, how to use them appropriately.”

Vu joins New York Life from Northwestern Mutual where he served as chief data officer since early 2020. He led a consolidated team across various disciplines, including data product and strategy; data science, AI, and analytics; data engineering; and data governance, the release said.

Previously, Vu spent 13 years at Major League Baseball, where he led its consolidated analytics organization as vice president of data and analytics. While at MLB, Mr. Vu led data and advanced analytics efforts at BAMTech, a streaming media technology spin-off of MLB Advanced Media.

“He understands enough about the insurance industry and life insurance in particular, but he also has really good experience outside the insurance industry,” Cook said. “You don’t typically look for cutting-edge, technology, data, and AI talent within life insurance companies, though that’s starting to change. It is important that we have that broader perspective right in house.”

Regulators have AI in their sights

Governance of AI is a significant emphasis for New York Life, Cook said, as the insurer aims for “ethical” use of AI’s impressive power. It remains an emphasis for regulators and consumer groups as well.

The NAIC concluded its recent meeting by adopting the Model Bulletin on the Use of Algorithms, Predictive Models, and Artificial Intelligence Systems by Insurers.

The bulletin is not a model law or a regulation. It is intended to “guide insurers to employ AI consistent with existing market conduct, corporate governance, and unfair and deceptive trade practice laws,” the law firm Locke Lord explained.

It is an interpretive bulletin as well, Kathleen Birrane, Maryland insurance commissioner, reminded colleagues. It will go to each of the individual states to consider for use and adoption.

“It is essential as this technology becomes more intertwined with more and more of the fabric of our society that it does not propagate or amplify any societal distortions,” Winter said.

InsuranceNewsNet Senior Editor John Hilton covered business and other beats in more than 20 years of daily journalism. John may be reached at john.hilton@innfeedback.com. Follow him on Twitter @INNJohnH.

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Federal regulators are releasing a steady trickle of the more than 14,000 public comments on the Department of Labor’s contentious fiduciary rule proposal.

One week remains until the Jan. 2 deadline to comment on the rule, which the DOL has fast tracked since its Halloween release. The DOL posted recordings this week of a two-day public hearing held Dec. 12-13.

DOL officials steadfastly refused to extend the comment period or defer the public hearing until comments were made public.

The current iteration of the rule is the department’s fourth attempt to apply a tougher standard to rollover sales of insurance products. The last two rules, in 2016 and 2020, ended up in court after industry trade associations brought lawsuits.

The DOL released its latest fiduciary rule attempt on Halloween, with President Joe Biden joining for a press conference to denounce “junk fees.” The rule was widely criticized by industry trade groups who claim the extension of fiduciary duty to virtually anyone recommending an annuity would have a chilling effect on advice to middle-market savers.

Commenters take sides

The main rule is officially known as “Definition of an Investment Advice Fiduciary.” Comments have poured into the government’s Regulations.gov website over the past couple weeks. Not surprisingly, registered advisors and consumer advocates favor the rule, while mostly everyone else is opposed.

A random sampling of three comment letters:

1. Mark J. Warshawsky, senior fellow at the American Enterprise Institute. Warshawsky called on the DOL to rescind the proposed rule, claiming it has not “made a compelling case nor offered sufficient evidence.” AEI is a dominant right-wing think tank known for opposing higher taxes and bigger government.

“On the assumption that most retirement investors, including plan sponsors, are ignorant and naïve, you assert that disclosure measures would be insufficient: only the force of government—backed by the prospect of private legal actions—can offer the right level of protection,” Warshawsky write. “Yet despite the litany of studies cited, you offer no direct support to this essential claim nor define the optimal level of protection.”

The studies cited by the DOL in support of its rule are weak and conflicting, Warshawsky stated. The department walks a tightrope between complimenting best-interest efforts from state insurance regulators and the Securities and Exchange Commission, while ultimately being critical, he added. There is no analysis of the costs associated with complying with overlapping rules.

“For a market to perform efficiently, not all need be fully knowledgeable, just the marginal actor, and you have not shown that the market is failing,” Warshawsky wrote.

Warshawsky noted the 2018 federal appeals court decision vacating the Obama administration’s fiduciary rule. Current efforts to square the new rule with that decision have only added “more ambiguity and uncertainty,” he said.

“I am not a legal expert but my intuition is that there is significant legal risk here for this regulation,” he concluded.

2. Ron Rhoades, associate professor of finance at Western Kentucky University. Rhoades, who also owns a registered investment adviser firm, Scholar Financial, testified live during the DOL public hearing. He provided several pages of additional comments in written form.

The DOL has the authority to extend fiduciary duty to everyone selling financial products from retirement plan accounts, he maintained, and “has acted reasonably in doing so.” Rhoades seized on the “trust and confidence” issue the court used in tossing the Obama fiduciary rule. The DOL claims even a one-time sale of an annuity creates a relationship of trust and confidence.

“Gone are the days when annuities were relatively straightforward products,” Rhoades wrote. “And, over the years, both registered representatives and insurance agents have been trained in relationship-based selling, as well as trust-based selling. It should come as no surprise that, by broadening the scope of their services and advice, and seeking to have customers believe they can be trusted.”

Rhoads goes on to suggest that the DOL “encourage” plan sponsors to only higher financial advisors “who eschew product-related compensation.” Critics have long suggested that the DOL wants to eliminate commission compensation and Rhoades puts it down on paper.

“It is possible that commission-based compensation be eliminated,” he wrote. “Every commission can be transformed into a clearly understandable fixed fee that would be paid directly by the consumer. There is no need today for product-based compensation, and the conflicts of interest posed.”

3. Richard Argotsinger, head of Argotsinger Wealth Management in Highlands Ranch, Colo. In business since 1986, Argotsinger is a certified financial planner who noted his commitment to the higher fiduciary standard.

Still, he is opposed to the DOL extending that standard to everyone.

Having a choice of “investment vehicles” is one of the most important factors in getting clients the right personalized financial plan, he wrote. Argotsinger agreed with industry opponents who say it will limit access to retirement products. It will also limit what he can offer, he added, noting that his clients choose how to pay him.

“Far from being a ‘junk fee,’ commissions are an important way that advisors are able to serve those who may not otherwise be able to afford to work with an advisor because they have less investable assets,” Argotsinger explained. “If this rule is finalized, I will be unable to work with smaller accounts or help lower and middle-income savers plan for retirement. This will most impact those earning below $100,000 per year.”

InsuranceNewsNet Senior Editor John Hilton covered business and other beats in more than 20 years of daily journalism. John may be reached at john.hilton@innfeedback.com. Follow him on Twitter @INNJohnH.

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2023 was a year of surprises, a panel of consultants at Mercer said during a recent webinar. But what will 2024 bring to the economy and to health care?

“It was certainly a year of surprise where economy is concerned,” said Julius Bendikas, Mercer’s European head of economics and dynamic asset allocation. “People said there was a high probably of the U.S. going into a recession, but they were proven wrong by a wide margin.”

Bendikas gave three reasons why the U.S. economy expanded rapidly in the third quarter.

Consumers were still able to tap into extra savings they accumulated during the COVID-19 pandemic.
Inflation is slowing and fuel prices are lower than they were at this time last year.
Fiscal policy has had a stimulative impact.

“It certainly was a year of positive surprise for growth,” he said. “And it disappointed a lot of people who were expecting a recession.”

After an economic cycle which Bendikas described as “overheating,” it’s natural for a period of cooling off to occur, he said.

“We think it’s only natural, after a cycle of overheating, for the economy to lose steam for a while,” he said. “We see the business cycle slowing down.”

Bendikas discussed several factors that he believes will lead to a slowing of the economy in 2024.

Consumer savings. Consumers have largely depleted the excess savings they accumulated during the pandemic. Any excess savings are concentrated among consumers in high income brackets. “The average consumer can’t tap into excess savings anymore,” he said.
Inflation has fallen, he said, with oil and natural gas prices as well as used car prices down from this time last year. “But they’re not going to fall by the same amount again,” he said. “I don’t expect inflation to fall further.”
Fiscal policy. “I expect that fiscal policy will be less stimulative and will turn into a headwind,” he said. “The U.S. economy will lose its assists and will have to face conditions head on. Banks are less willing to give out loans.”

Inflation continues to be top of mind for employers and workers alike, Bendikas said.

The falling inflation rate, “has been encouraging,” he said. “We are not that far from inflation returning to where it is supposed to be – a 2% annual rate. Commodity prices are falling and we are not seeing supply chains disrupted as they were in the past.”

However, he said, one issue about inflation that is still worrying “is the continued strength of the U.S. labor market, which underpins wage growth.”

Benikas said he sees some signs of the labor market cooling in 2024.

“After a couple of years of abnormality as far as inflation and growth are concerned, I see next year moving to normalization,” he said.

Health care costs: Good and bad news

In looking at health care costs for 2024, there is good news and bad news, said Tracy Watts, Mercer national leader for U.S. health policy.

First, the bad news. Mercer does not expect to see much relief on overall medical cost trends. Employers with 50 or more workers saw increases in health plan costs of 5.4% for 2023 and 2024, with costs for 2025 expected to be even higher.

Two drivers of these cost increases are high prescription drug costs and consolidation of health care providers, Watts said.

The good news, she said, is that “there are still plenty of strategies for employers and plan sponsors to use to manage costs.”

She cited strategies such as programs to manage specific health conditions and steering workers to receiving care in a high performance network.

Susan Rupe is managing editor for InsuranceNewsNet. She formerly served as communications director for an insurance agents’ association and was an award-winning newspaper reporter and editor. Contact her at Susan.Rupe@innfeedback.com. Follow her on Twitter @INNsusan.

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As 2023 draws to a close, agents and advisors are reviewing the trends that have impacted the life insurance industry during the past several months and are thinking about what is ahead for 2024 and beyond. Two industry experts, John Carroll, SVP and head of life and annuities for LIMRA, and Brian Haney, founder/CEO of The Haney Company, shared some trends that are shaping the industry, what is in store for 2024 and 2025, and steps advisors can take to make the most of these trends.

Life insurance premium growth

Carroll said that in 2022, total life insurance premium increased 1%, setting a new sales record. Through the third quarter of this year, total life insurance premium is level with sales over the first three quarters of 2022. LIMRA is forecasting total individual life insurance premium to increase by as much as 5% in 2024 and 2025. Things are expected to settle down in 2024, Carroll explained. No major regulatory issues appear to be on the horizon, and the economy is also expected to be OK despite some consumer uncertainty due to inflation and lingering concerns about the economy.

There has also been a clear drift toward digital engagement, especially by younger consumers, Carroll added. According to LIMRA’s research, 81% of Gen Z and 75% of millennials are turning to social media for discussion, advice, and information regarding financial topics.

In addition, 2024 will see growth in insurtech firms, as the industry continues its efforts to streamline insurance processes. The use of technology will not go away because the industry needs it, Carroll pointed out. Covid forced the financial-services industry to invest in technology, and this movement towards greater use of technology will continue to move forward.

Social media prospecting has also grown and will continue to grow, Carroll added. For example, many agents and advisors are using LinkedIn for prospecting. While there has been a huge shift towards the use of technology, he cautioned that human interaction is critical. Those who do well will have a digital presence, coupled with a strong physical connection.

Addressing the coverage gap

Despite the rosy estimates for life insurance premium growth in 2024 and 2025, Carroll pointed out the life insurance coverage gap among American consumers. This need gap will continue to be an issue for insurers and consumers alike.

Although quite a few consumers see the value of owning life insurance, only 52% of U.S. adults report having life insurance coverage, either individual, group, or both. But 41% of American consumers say they need life insurance, or they need more life insurance. This represents more than 100 million adults. “So, the need for life insurance is there,” he said.

To address this need and close the gap, Carroll said that agents need to understand the realities that people are facing. The problem is that many of them do not know what type of insurance to get or how to buy it. “You have to learn how to reach these people,” he said. “Buying life insurance is a complex process. So, help them understand what they need and how to fill that need.”

As agents and advisors work with their clients and prospects to reach more people and close the coverage gap, Carroll said that they need to:

Have a plan.
Come forward as trustworthy.
Demonstrate that they have experience.
Take a holistic approach. “Regularly ask your clients what their needs are because their needs will change over time,” he said.
Realize that selling life insurance is not a “one-and-done process.”

More trends shaping the industry

In his insights, Haney cited the financial-services industry’s leverage of technology and artificial intelligence (AI) to create better decisions and outcomes for all. The reality, he added, is that computers can add significant value to the overall life insurance market experience, both for consumers and providers.

Whether it is reducing expenses associated with underwriting, improving margins on existing risk blocks, providing a more user-friendly interface for producers and consumers, there are various opportunities to build a better marketplace where more Americans have better access to policies, and we can reduce the underinsured gap that exists in our country, Haney said.

“I personally feel that this should be a top industry imperative. The question cannot be: “Should I consider adopting AI/digital tools or not?” The question must be: “What tools are the most relevant to my infrastructure and can add the most value, reduce friction, improve processes, and ultimately deliver better policy experiences?” he said.

Better choice architecture is another trend, noted Haney. Technology and a continued emphasis on doing more for more people should hopefully continue to facilitate strategic conversations and foster collaboration at both the insurance company level and the practitioner level on how the industry can provide increased value across “main street America.”

“Recognizing the dramatic shift in demographics in that we are becoming a “majority minority Nation” should spur reflective planning discussions on how we engage more effectively,” Haney said. “Life insurance, in particular, is not seen or experienced in a uniform manner across all audiences, and this demands a renewed attention to how we deliver it.”

The need to understand how to serve an increasingly diverse marketplace should help the industry cast a better net of product offerings and delivery systems, while empowering practitioners to have better interactions with minorities and markets that have not been as well-served or targeted historically, Haney said.

“Corporate leaders must develop inclusive practices both internally and externally, as the diversity among stakeholders demands this approach. ” Perhaps, it can be as simple as asking the question: “Who’s not buying our stuff that should be, and what can we do about that?” he said.

Lastly, financial professionals and insurance agents must recognize the fact that the industry is at a pivotal moment in history: “How will we remain relevant to a consumer population that has grown increasingly wary of working with agents and advisors and has more tools now than ever to buy financial products and services online and without the help of a professional?” Haney asked.

“Will we embrace radical changes in how we engage with consumers, relate to an increasingly diverse marketplace that communicates differently from what we may be used to, and will our practices evolve to meet the growing needs of consumers, and work to change the narrative of how people perceive getting help with their finances and the need to work with a professional?”

Practitioners must stand up, become better communicators on digital platforms, and recognize that marketing and business development are no longer about lead generation but about thought leadership and changing narratives, Haney said.

Ayo Mseka has more than 30 years of experience reporting on the financial services industry. She formerly served as editor-in-chief of NAIFA’s Advisor Today magazine. Contact her at amseka@INNfeedback.com. 

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Massachusetts Attorney General Andrea Joy Campbell is mimicking the language preferred by federal regulators in proposing regulations to prohibit hidden “junk fees.”

Industry trade associations don’t like those two words any better at the state level. In fact, the proposal is moot as it relates to the life insurance industry, a trio of trade groups wrote in a letter requesting an exemption for “life and annuity carriers and products.”

Life and annuity carries are already “highly and ably regulated” by the Massachusetts Division of Insurance, said the letter sent Wednesday by the Life Insurance Association of Massachusetts, the American Council of Life Insurers, and the Insured Retirement Institute.

“Disclosures specific to life insurance-related fees must be sent to consumers, advertisements are strictly regulated and must be approved by the Division, and the Massachusetts insurance commissioner and regulators in other states have extensive authority to conduct market conduct examinations and request information and data from licensees,” they wrote. “Inclusion of the life insurance industry in the regulation is unnecessary and inappropriate and would be harmful to our policyholders.”

Total disclosure of so-called ‘junk fees’

The proposed regulations would require Massachusetts’ businesses to “clearly disclose the total price of a product at the time it is presented to consumers, provide clear and accessible information on whether fees are optional or required, and simplify the process for cancelling trial offers and recurring charges, amongst other rules,” Campbell’s office said in a news release.

“Millions of Massachusetts consumers are being harmed daily by businesses that charge hidden or surprise fees for profit,” Campbell said. “By prohibiting junk fees and requiring transparency, these proposed regulations will not only ensure that consumers know what they are actually paying for when buying a good or service, but also level the playing field and market for those honest businesses that clearly disclose their pricing upfront.”

The state describes “junk fees” as hidden or surprise fees above the advertised price of a good or service. These fees, sometimes termed “convenience fees” or “service fees,” are often not disclosed or explained, or they are disclosed only near the end of a purchase, rather than at the outset, the release stated.

President Joe Biden is using “junk fees” in several rulemaking efforts across industries. The financial services industry is most concerned about the fiduciary rule proposed by the Department of Labor. A comment period for that rule ends Jan. 2.

‘Problematic’ for life insurers

A number of sections in the proposed regulation “are problematic for life insurance companies,” the letter explained. For example, a section of the rule would make it a violation to fail to “disclose the Total Price of any Product prior to requiring a consumer to provide any personal information, including billing information, unless said information is collected specifically, and only to the extent necessary, to determine whether the Sale of such Product to the consumer is legal, or whether the Product is available in the consumer’s geographic location.”

Although this disclosure requirement may make sense for other industries, it would “undermine the ability of life insurers to properly underwrite, thereby disrupting consumers’ access to financial and retirement security products,” the trade associations said.

“Insurers must collect personal information during the underwriting process, before quoting a Total Price to a customer,” the letter added. “Life and annuity carriers and distributors, for example, must collect personal information about a person’s age, general health, and financial situation before quoting a price and issuing a contract to a consumer. Insurance depends on the collection of personal information- up front, with the customer’s permission – to appropriately price the product.”

The AG’s office held a public hearing on the proposal Wednesday and Campbell has said the rule could be enacted soon after. If enacted, Massachusetts would be only the second state (following California) to issue a rule specifically targeting “junk fees.”

InsuranceNewsNet Senior Editor John Hilton covered business and other beats in more than 20 years of daily journalism. John may be reached at john.hilton@innfeedback.com. Follow him on Twitter @INNJohnH.

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Illinois courts continue to sort out the implications of the state’s far-reaching privacy protection law on insurance companies.

In the latest significant ruling, a state appellate court sided with two insurers Tuesday, ruling that they are not responsible for part of a $19 million settlement in a biometric privacy case.

The decision affirms a trial court’s finding that National Fire Insurance Co. of Hartford and Continental Insurance Co. owed Visual Pak no duty to defend under the terms of their policies. The court acknowledged that its decision runs afoul of a recent decision from the U.S. Court of Appeals for the Seventh Circuit, which reached the opposite conclusion under Illinois law.

“Though we do not do so lightly, we believe that this federal decision was wrongly decided and decline to follow it,” the decision states.

Illinois is ground zero for the fight over biometric data thanks to the state Biometric Information Privacy Act, which took effect in 2008 and provides a comprehensive set of rules for those entities choosing to collect biometric data from Illinois residents. A series of privacy rulings in recent years have ensnared insurers who could be on the hook for jury awards.

Two Illinois companies

In a class-action lawsuit filed in 2018, lead plaintiff Luis Sanchez claimed his rights under the BIPA were violated. Sanchez was an Elite Staffing employee provided to Visual Pak as a warehouse worker from February to April 2016, the lawsuit says,

Sanchez was required to scan his fingerprint at the beginning and end of each workday. According to the amended complaint, Visual Pak “collected, stored, used, or disseminated” Sanchez’s fingerprints without his consent and without any policies in place regarding the retention and deletion of his fingerprints from the database.

“Visual Pak failed to inform him of how his biometric information would be used,” the lawsuit says. “Nor did Visual Pak provide him with a release for the use of his biometric information.”

Visual Pak had a commercial general liability policy with National Fire, and an excess/umbrella policy of general liability coverage with Continental Insurance, court documents say. Visual Pak estimated that the class of former employees whose BIPA rights were allegedly violated numbered over 13,000 people.

Eventually, the BIPA suit settled for $19.5 million and Visual Pak agreed to pay $3.5 million, court documents say. The insurers sought a declaration in 2020 that they “owed no duty to defend or indemnify Visual Pak in the BIPA action,” the lawsuit says.

General exclusion at issue

The insurers are relying on a Violation of Statutes exclusion that exempts coverage for violations of the Telephone Consumer Protection Act, the CAN-SPAM Act, the Fair Credit Reporting Act, the Fair and Accurate Credit Transaction Act, and “any statute, ordinance or regulation … that prohibits or limits the sending, transmitting, communicating or distribution of material or information.”

The appellate court found that the latter “catchall” language in the exclusion applies to the Visual Pak case.

“[I]f we merely isolated this catchall language, it is simply impossible to deny that it describes BIPA,” wrote Justice David Ellis. “BIPA regulates the collection, dissemination, and disposal of one’s biometric identifiers and information.”

The Seventh Circuit reached the opposite conclusion in a June ruling on the lawsuit, Citizens Insurance Company of America v. Wynndalco Enterprises. The federal court ruled that Citizens must defend its client under a business liability policy in two putative class actions filed under the BIPA.

“The Seventh Circuit held a broad version of the Violation-of-Statutes exclusion is ambiguous because it appears to nullify significant portions of coverage provided under ‘personal and advertising injury,'” the law firm Wilson Elser wrote. “Because ambiguities are construed in favor of the insured, the Court held the BIPA claims at least potentially fall within coverage, thus triggering the duty to defend.”

InsuranceNewsNet Senior Editor John Hilton covered business and other beats in more than 20 years of daily journalism. John may be reached at john.hilton@innfeedback.com. Follow him on Twitter @INNJohnH.

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As investors become inundated with financial advice in the news and on social media, misinformation and misguided advice from unqualified sources such as relatives, generative artificial intelligence (AI) or online influencers, has become more prevalent and actionable. However, willingness to implement and trust financial advice from online sources varies by generation, according to Nationwide’s ninth annual Advisor Authority survey, powered by the Nationwide Retirement Institute.

The survey found that more than a third (34%) of non-retired investors aged 18-54 have encountered and have then acted upon financial information seen online or on social media, which turned out to be misleading or factually incorrect. This includes more than two in five (41%) Gen Z and 34% of millennial investors.

“Social media is a powerful tool and a great resource for learning about different financial topics, but it comes with plenty of misinformation as well,” said Rona Guymon, senior vice president of Nationwide Annuity Distribution. “Online information can be inaccurate, or not applicable to your situation. That’s why it’s important to scrutinize the financial information you find online – or better yet, turn to an advisor for help.”

The impact of online misinformation

Younger investors, whose upbringing has coincided with the rise in online information (and misinformation), are navigating the financial advice they find on the internet differently from older investors, the survey said. More than two-fifths (42%) of Gen Z investors and 38% of millennial investors are accessing financial information, guidance, and advice through social media, by far the most of any generation (vs 16% of Gen X and 5% of baby boomers). Millennials (21%) and Gen Z (17%) are also the age groups most likely to turn to generative AI for financial information and guidance, compared to 7% of Gen X and 2% of baby boomer investors.

Consulting the internet for efficient and accessible information is second nature to younger investors, who are unfortunately experiencing the pitfalls of unverified financial advice in real time. More than four in ten (41%) Gen Z and 34% of millennial investors have encountered, then acted on misleading or factually incorrect financial information seen online or on social media. By contrast, older investors appear to be more cautious about online financial information, making them less likely to fall victim to misleading advice: Just 6% of baby boomer investors have acted on misleading or factually incorrect financial information seen online or on social media. This is the least of any generational cohort, according to the survey.

Younger investors more trusting of AI

While their elders take a more reserved approach to AI-generated advice, many younger investors said that their trust in financial professionals would increase if their advisor incorporated AI into their counseling process: More than a third (34%) of Gen Z investors and 37% of millennial investors said they would trust their financial professional more if they leveraged AI to inform the counsel they provided.

In turn, Gen Z and millennial investors are generally more supportive of advisors using AI to streamline their work, which can free up precious time for advisors to pursue more meaningful client interactions, one-on-one counsel, or other value-added activities. Four in ten (40%) Gen Z investors and 36% of millennial investors said they would trust a financial professional more if they leveraged AI to streamline day-to-day administrative tasks.

“While generative AI will likely continue to be an effective means of research and efficiency, it’s still important to have a qualified financial professional be part of the process,” Guymon said. “Financial professionals are familiar with the specific needs of investors and can review any AI generated advice and action steps to be sure they are in the best interest of their clients.”

Advisors finding uses for AI

While the emergence of AI may lead to further innovations in the financial sector, advisors today are playing it safe and using it as a supplement rather than a replacement for personalized advice, the survey said. Nearly a third (31%) of advisors who are planning to implement AI into their practice in the next 12 months are planning to use the platform for data insights. And more than a quarter (27%) plan to use it to onboard clients. Importantly, the same percentage (27%) plan to use it to educate clients.

Regardless of the extent to which AI is implemented, most advisors see it becoming part of their work over the next year in some capacity. For example, only 19% of advisors said that they are not planning to implement AI capabilities into their practice over the next 12 months.

Preventing clients from falling victim

To make sure that their clients do not fall victim to financial misinformation found online, advisors are leaning into educational and preventative measures to emphasize the importance of verified, reputable financial advice.

Six in ten (60%) advisors are providing guidance to their clients on a case-by-case basis when they’re approached with questions about a specific situation, and nearly the same number of advisors (58%) are educating their clients on the potential risks of misinformation found on social media and generated by AI. In addition, 47% are encouraging their clients to stick to their long-term financial plans to avoid hasty decisions, the survey said.

Client education is also a top priority for MDRT member Jennifer Mann, vice president, Lenox Advisors. Mann said that it can be dangerous for investors to act solely on online advice or any blanket advice. No two families are in the same situation, she explained. Even with the same income, one family may be about to retire with a big nest egg and no mortgage, another may have just bought their first home and had their first child with not much in the bank, while another may be drowning in credit card debt and trying to pay for college, she said. “It is our responsibility as advisors to educate our clients about the importance of personalized advice specific to their unique situation,” she said.

Another suggestion for helping clients stay away from financial misinformation comes from MDRT member Brandon Heckert, advisor/partner with FSM Wealth. Heckert said that regulation changes more rapidly in the financial-services industry than in just about any other industry. With a rapidly changing landscape, come information and resources that can easily become outdated in a matter of months, especially online.

Outdated information, in addition to websites with the primary goal of pushing a product or service, has made online research for financial planning solutions a little more complicated than one might expect, Heckert added. For a single financial question, one might find 5 different answers, depending on the date the article was written and the source. “We always tell our clients that before making an assumption or decision based on something found online, run it past us first,” he added. “We want to be that unbiased source of reliable information to our clients. By providing our own content and resources to our clients via quarterly newsletters, weekly market commentaries, or periodic reviews, they will typically come to us first when they have a question on their plan anyway.”

MDRT member Brenton Harrison pointed out that no license is needed to give financial advice online, and there is no regulatory authority that governs what’s shared. Harrison is a financial advisor with New Money, New Problems. “If someone gives advice that ends up harming their followers, there’s little consequence to them or mechanism to hold them accountable,” he added. “While this doesn’t mean all online financial advice is bad, the listener must exercise caution before they act on it in their personal life.”

For additional insights on this Advisor Authority data, see the infographic. Nationwide’s ninth annual Advisor Authority study powered by the Nationwide Retirement Institute explores critical issues confronting advisors, financial professionals, and individual investors—and the innovative techniques that they need to succeed in today’s complex market. The research was conducted online within the U.S. by The Harris Poll on behalf of Nationwide from August 14-30, 2023, among 507 advisors and financial professionals and 2,404 investors ages 18+ with investable assets (IA) of $10K+.

Ayo Mseka has more than 30 years of experience reporting on the financial services industry. She formerly served as editor-in-chief of NAIFA’s Advisor Today magazine. Contact her at amseka@INNfeedback.com. 

© Entire contents copyright 2023 by InsuranceNewsNet.com Inc. All rights reserved. No part of this article may be reprinted without the expressed written consent from InsuranceNewsNet.com.

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Americans are at their peak in feeling experienced with investing, and for the first time, millennials are emerging as the generation that is the most comfortable with market volatility, according to a Hearts & Wallets study on consumer attitudinal trends for 2024.

These are among the consumer attitudinal trends for 2024, according to the Hearts & Wallets’ research report, Attitudes & Sentiment 2023: Driving Corporate Strategy in Response to Changing Consumer Needs

7 investing trends

The seven trends highlighted in the report are:

1. The feeling of being more experienced with investing is at its highest level (31%) since survey tracking began for this attitude in 2011, when it was 18% nationally for U.S. households. Consumers who perceive themselves as experienced with investing are more likely to say they make decisions on their own and use paid investment professionals, the survey said.

2. Millennials are now the generation that is the most comfortable in accepting market volatility, reversing earlier skittishness. In explaining millennials’ comfort in accepting market volatility, Laura Varas, CEO and founder of Hearts &Wallets, said that younger households should theoretically have a higher risk tolerance than older households because younger ones have longer timeframes. However, she added, millennials did not feel and behave in accordance with this theory until this year. The 2008 crisis, which concentrated some of the worst days for the U.S. stock market in decades into a few months, shook millennial confidence in the U.S. stock market.

In 2011, three years after the 2008 crisis, only 16% of millennials were comfortable in accepting market volatility, 5 percentage points lower than Gen X and baby boomers at that time, Varas added. It took until 2014 for millennials to equal baby boomers’ comfort levels with market volatility, even though boomers have a much more condensed timeframe in the market. “Today, millennials are finally behaving as one would expect a group with a longer timeframe in the market. Millennials are now a lot more likely to be comfortable accepting volatility than Gen X or boomers. 46% of millennials are comfortable “accepting volatility in the hope of getting a higher return,” 22 percentage points higher than boomers this year,” she said.

Like millennials were a decade ago, Gen Z has been more shaken by recent economic turmoil (crypto, meme stocks, bank failures, inflation, etc.) than older generations with more years of experience from which to view these disruptions, Varas added. In 2023, Gen Z’s comfort in “accepting volatility in the hope of getting a higher return” declined markedly, dropping from 43% in 2022 to 28%. Conversely in 2022, Gen Z was the generation who were the most comfortable in accepting volatility at 43%, 3 percentage points higher than millennials (40%), Gen X (38%) and boomers (24i%). “So, yes, younger households might be expected to be more comfortable accepting market volatility in the hopes of higher returns. But significant downturns can shake their confidence, in part because they lack the experience with market ups and downs of older generations,” Varas pointed out.

3. Receptivity to financial advice is at its highest level ever, especially among millionaire households. Seeing value in paying for financial advice is now at 32%, which is a high since tracking this attitude began in 2013, nearly doubling from 18%. Investors overall are feeling more experienced with investing, Varas said, in explaining why receptivity to financial advice is so high. They are becoming more engaged and bigger consumers of advice. As a result, advisors should invest in both technology-driven and people-first service models, Varas suggested. They should personalize their messaging to address goals that matter the most to different groups and use investment goals when working with higher-asset households. Lower-asset households are focused on life goals.

In addition, Varas said that advisors should adjust investment product line, positioning, and advice for inflation and the new interest-rate environment. “For example, emphasize solutions that generate current income while reminding customers that capital appreciation is the best hedge against inflation,” she added.

4. Emergency funds are a key part of financial wellness, despite growing competition from other saving and investing goals. Building an emergency fund is the top saving and investing goal for individual investors, cited by 52% of U.S. households nationally. This is occurring even as Americans juggle the demands of more conflicting goals. More households balance multiple goals than they did in the past, with 57% of households saving for 3-plus goals, up from 44% in 2013. Today, 1 in 4 households (24%) has 5-plus goals, according to the report.

5. Inflation is again the #1 concern, cited by 44% of U.S. households. But managing finances while aging is a growing concern for certain Americans. One in 5 households is highly concerned about the ability of loved ones to manage their finances as they age.

6. Having the ability to bank and invest in the same firm is one of the attitudes showing the biggest increases in agreement, year over year. Nationally, 35% of households want to bank and invest at the same firm, which is up from 23% in 2010.

7. Interest in the asset managers behind funds is growing; 36% of households now agree it “is important to me which investment companies manage my mutual funds, regardless of whether I or a financial professional has chosen the funds.”

What do these trends mean for advisors?

All of these trends have major implications for financial advisors. According to Varas, as they work with their clients in 2024, advisors should:

Recognize the power of advice to connect with different generations and other segments.
Build and deliver advice experiences that can balance multiple goals.
Develop financial mental-wellness programs to address and ease anxiety.
Consider versioning by generation. Gen Z has been more shaken by recent turmoil than older generations. Millennials with $1M+ feel more anxiety than their Gen X and Boomer counterparts with $1M+.
Strengthen both banking and investing capabilities and the connection between the two.
Communicate with clients about the asset managers who are behind the funds offered, as consumers want to understand who these firms are.

The Hearts &Wallets research report is drawn from the section of the Hearts & Wallets Investor Quantitative Database, which analyzes consumer attitudes, sentiment, concerns, and goals toward saving and investing. The latest survey wave was fielded from September 11 – October 6, 2023, with 5,846 participants.

Ayo Mseka has more than 30 years of experience reporting on the financial services industry. She formerly served as editor-in-chief of NAIFA’s Advisor Today magazine. Contact her at amseka@INNfeedback.com. 

© Entire contents copyright 2023 by InsuranceNewsNet.com Inc. All rights reserved. No part of this article may be reprinted without the expressed written consent from InsuranceNewsNet.com.

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