Here are 12 things to keep tabs on at the AALU meeting in DC

By Warren S. Hersch

May 04, 2015 at 01:43 AM

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Life insurance is now properly taxed. Annuity providers, whatever Senator Elizabeth Warren may think, don't need more regulation. And to help drive home these points with lawmakers, the Association for Advanced Life Underwriting has initiatives underway to boost its membership ranks and supporters on Capitol Hill.

So communicated three AALU executives —Marc Cadin, a senior vice president of government affairs; Chris Morton, vice president of legislative affairs; and James Lee vice president of member services & marketing — in a wide-ranging interview. The three spoke with LifeHealthPro Senior Editor Warren S. Hersch in advance of the association's annual meeting, being held in Washington, D.C. May 3-5. The following are excerpts.

Hersch: What's the theme of this year's annual meeting? How will this focus be reflected in the content?

Lee: In a nutshell: opportunities that come from innovation. This will be the overarching focus of the keynote addresses, starting on Sunday with space activist Peter Diamandis, who runs the X Prize Foundation.

On Monday, Apple Co-Founder Steve Wozniak will explore how he personally has been involved in innovative businesses — including Apple — and will examine principals of innovation that can be applied to any business. Barbara Corcoran of ABC's Shark Tank will discuss innovation from an entrepreneur's perspective: how to always be innovative in business to achieve growth.

Jason Dorsey, an expert on Gen Y, will then bring an insider's perspective on how producers can effectively interface with millennials. Thereafter, we'll shift to policy discussions with a keynote from the 2012 Republican Presidential Nominee Mitt Romney.

Innovation will also infuse AALU's program content. For the first time in 7 years, we'll be putting three AALU members on stage. They'll be talking about how they used innovation to further their practices, each differently. We'll also be making announcements respecting about how the AALU will continue to grow and better serve the industry.

Hersch: Is there a nexus between the innovation theme and AALU's public policy objectives?

Cadin (pictured at right): As we look at the broader industry landscape, there are many challenges faced by industry and distribution, some of which concern public policy. Our job is not only to innovate but also to be an agent of change.

So we're adopting a new mission at the conference: to strengthen, grow, promote and advocate for the life insurance community. These mission components will be in evidence throughout the event.

We've invested a lot into the annual meeting and into connecting the meeting to our professional development tools. That will enable us to better serve our members — and by extension the American people. We have to do a better job promoting the profession to bring more bring into the field.

Over the next few years, we'll be pursuing a new strategic direction that will change our business model. To that end, we'll continue to serve our existing members — the industry's top life insurance professionals — via a subscription model. We're also instituting a new mid-tier membership level that will provide benefits a la carte.

Hersch: How will the new mid-tier members be served differently than existing members? And to what extent would you expect the new membership model to help AALU achieve recruitment and retention goals?

Cadin: AALU enjoys an exceptionally high retention rate: between 90 and 93 percent year-over-year. Generally, we only lose people when members retire or leave the business.

AALU today is centered on agents and advisors who have built up a book of business and are particularly interested in advocating and protecting their clients by getting involved politically in advocacy initiatives. The new mid-tier member level, to be launched with a number of companies, is geared to the next generation of producers: early and mid-career professional.

As part of this initiative, we're developing an app that will provide one-stop shopping: for information about our advocacy work, educational initiatives like our Washington Reports and Essential Wisdom Series, plus other online resources. The app will also leverage the knowledge of our top AALU members.

Hersch: Do you expect that AALU will revise educational content at the conference to accommodate its new members?

Cadin: We would argue that we've already meaningfully changed educational content. The AALU of the past was about two basic market places: estate planning and executive benefits. The workshops and the professional services we're providing at this year's annual meeting covers a broader spectrum of what industry professionals are doing — from insurance and retirement planning to investments.

Lee: We're also making content more useful to a new generation of producers by changing the delivery — both in form and frequency. The mobile app we're building, which will avail users of videos, checklists, scripts and other resources, is now in the market research phase. We expect it to go into beta testing by the end of this year.

Hersch: In implementing these initiatives, will you be looking to best practices instituted by other associations or third-parties to help carry them out? Also, will additional funding be required?

Cadin: We're very much focused on pursuing collaborative opportunities with other industry organizations. And so we've entered into a joint venture with NAILBA. We've also had discussions with the ACLI, LIMRA and the American College about how to leverage their strengths to inform and empower the distribution system.

We're also engaged in a healthy dialogue with leaders in carrier and brokerage communities. Everyone feels the industry is capable of so much more — to become a catalyst for change. But to do that, we need to bring the field's best and brightest minds together.

We believe our industry is uniquely positioned to solve Americans' financial, retirement and security challenges. So we have to be stronger and more effective. We believe that fundamental innovations to our business model and mission will better position us to help the industry reach its potential.

Hersch: At this time last year, AALU reported a membership base of below 2,500 agents and advisors. Where does membership stand currently? Have you established new membership goals?

Cadin: We're slightly up in membership —closer to the 2,500 benchmark. Based on our existing business model, our membership will be up 3 percent this year.

So we're talking about incremental growth. As we roll out the new subscription and mid-term membership programs — both still a work in progress — we'll be better positioned to talk about membership objectives, revenue projections, price points, and so on.

Hersch: Moving on to Capitol Hill, what are the major legislative and regulatory issues of concern now to AALU? Where will the organization be focusing most of its advocacy efforts?

Morton (pictured at right): We have too often and for too long played only defense on Capitol Hill. We need to continue to defend against attacks on the industry, both from a tax and regulatory perspective.

But we also have to advocate for policies that will help the American public better prepare for financial and retirement needs. As part of this effort we've established a financial protection and life insurance caucuses in both the House and Senate.

We'll be inviting lawmakers to join these caucuses; our goal is have 100-plus members. We'll work with these lawmakers to educate their colleagues about the value of our industry; and to advance policies that that avail more consumers of our industry's solutions.

From an engagement vantage point, we can't do this work on the backs of our existing 2,500 AALU members. We need a broader group of active and politically engaged AALU members. And so the new subscription-based and mid-tier memberships will be key to promoting advocacy initiatives at the grass-roots level and to expanding relationships with members of Congress.

Hersch: How do you view the prospects of tax reform this year? What are the association's major concerns?

Morton: The concerns we expressed last year remain the same. While we may not see tax reform in the next year, it's coming —and likely sooner rather than later. We need to continue to be part of the conversation.

House Ways and Means Committee Chairman David Camp set the stage for a variety of proposals that are significantly problematic for the industry. Among other provisions, the Camp Discussion Draft calls for a 26 percent increase in the tax liability of life insurance companies over the next decade. Compare this to other industries that only get hit with a one percent net tax increase.

The Discussion Draft proposals are not in keeping with providing greater financial and retirement security for the American people. And so they remain a primary concern and focus of the annual meeting.

Hersch: Marc, in a previous conversation, you noted that life insurance is taxed properly, a message that you've been communicating to lawmakers on Capitol Hill. To what extent are you receiving a positive reception?

Cadin: The great news is that, because the facts are on our side, the message is being positively received. But there remains an education gap: People still talk about the product in incorrect ways — using misleading terminology to describe how our products are taxed.

The fact is, there's no provision in the Internal Revenue Code that deducts or otherwise excludes inside build-up — the cash value component of permanent life insurance —from income taxation. The product is unlike anything else on Congress' list of tax expenditures, which all enjoy special tax treatment in the Internal Revenue Code.

So the facts are clear: Inside build-up is not a tax preference; and therefore life insurance is taxed appropriately. Our job is to continue to educate the industry, members of Congress and key decision-makers on what the facts are. The expected result of this work — our goal — will be the removal of inside build-up from the tax expenditure list.

Hersch: Speaking of Congress, the 2016 presidential campaign for 2016 is already underway. Do AALU's advocacy efforts vary depending on who controls the White House and the make-up of Congress?

Morton: As we say here at AALU, we represent the Insurance Party. And so we support and work closely with those congressional representatives and senators from both parties who appreciate and understand the value of our products and our industry.

Hersch: Does this appreciation extend to the SEC and DOL, which are considering fiduciary standards for financial professionals offering investment and retirement plan advice? To what extent are fiduciary standards governing these spaces of heightened concern this year relative to past years?

Morton: Clearly, both issues are very concerning to us. Considering the SEC piece first, we've said repeatedly the SEC has not produced analyses or data other than this notion that consumers would be confused by the lack of a single, harmonized fiduciary standard governing advisors.

We've met with SEC reps on a number of occasions to also express the fact that life insurance products and producers are already heavily regulated by FINRA, the SEC and the states. Putting a fiduciary standard on top of current regulation doesn't make much sense to us.

On the DOL front, we're still digesting the 1,000-plus pages that were released about 10 days ago covering its new rule. But an initial reading of it is very disconcerting. We're very concerned about the DOL's lack of understanding of the commission-based compensation model. Any move on their part to diminish this model will negatively impact the ability of middle income consumers to get proper advice to save appropriately for retirement.

Hersch: As you're no doubt aware, Senator Elizabeth Warren has sent letters to the country's largest annuity providers. She questioned the rewards and incentives the companies offer customers and cited the need for a strong conflict of interest rule for retirement advisors. Has the AALU taken a position on this development?

Morton: [Senator Warren's announcement] speaks to the need for a better understanding of the marketplace. The bottom line is that annuities are important for consumers in terms of their overall retirement security and retirement planning.

Our members are active in making sure that those products are appropriately disclosed and regulated; and that they're adhering to the highest ethical standards. Senator Warren's assertions don't comport with the way in which our members conduct themselves and the value of annuity products to customers. So we don't perceive any hole in the regulation of annuity producers.

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