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Why Life Insurance Illustrations Fall Short

Overview

The life insurance illustration is the most outdated, impractical predictive tool in the broader investment world. But “instant” or “simplified” alternatives only compound the existing problem. Where traditional life insurance illustrations fall short, Illumine™ applies real-world market and product conditions to stress test the durability of any life insurance product — and ensure a policy stays in force through the unexpected.

“Can an insurance agent be a fiduciary?”

Scrolling LinkedIn the other day, I saw a post with that heading. I don’t recall the author, and I’m fairly certain it was a discussion about the technical nature of the best interest rule and commission disclosures. Personally, I’d rather have Kenneth Lay and Jeffrey Skilling manage my investment portfolio than dig into that—plenty of far braver souls have already tackled it. Rather, I’d reframe the question like this:

“Could an insurance agent be a fiduciary?” Or, put another way, does the industry provide the requisite tools and insight for producers to truly and defensibly understand policy risk, compare alternatives, and align a recommendation with a client’s portfolio objectives? The answer is not as straightforward as it should be.

My work with The Ridgeback Group affords me the opportunity to watch our producers ply their craft every day, and every day I am impressed with the level of care, diligence, and research that goes into each placed case. And also by the amount of manual labor required to subsidize the inherent deficiencies of the most outdated, impractical predictive tool in the broader investment world: the life insurance illustration.

In this regard, the industry has failed our producers.

Despite being perhaps the most important (and frequently used) tool in a producer’s toolbox, illustrations haven’t changed much over the years, leaving clients with, at best, a misunderstanding of what type of policy might be right for them. Presented with an overwhelming array of options, a client often makes the understandable decision to just go with the cheapest policy, which is a bit like trying to build a Super Bowl-winning football team and using only players making the veteran minimum.

Helping Owner Firms solve industry problems through technology makes Ridgeback Group Co-Founder Matt Murphy smile.

What’s even more stomach-churning, some organizations are building “instant” or “simplified” illustrations that, I’ll admit, afford a producer more efficiency, but at what cost? Does ceding substantial control over a policy’s design to machine learning or another technology really benefit the client?

In my opinion, efforts like these only compound the existing problem with illustrations. Technology can and should be used as a force multiplier for producers, but when it comes to truly building and understanding the right design for a client, thought leadership should be devoted to supplementing and buttressing the forecasting power of illustrations, not making it even easier to sell an unsound policy.

A lot has been written about the inadequacy of illustrations, and I won’t belabor this anymore, but in my opinion calling attention to a problem without vigorously exploring or presenting solutions is like putting an elevator in an outhouse—it just doesn’t make sense.

Is the cheapest product really the best when applied to real-world conditions?”
Matt Murphy
Co-Founder, The Ridgeback Group

At The Ridgeback Group, our approach is to treat illustrations like a basic flat map. It will give you a sense of where you’re going, and maybe even tell you how fast you can get there as the crow flies, but without additional detail, it’s an incomplete resource to rely upon. For those who would prefer not to end up like the Donner party, you’d also need a compass, to keep direction; a topographic map, to identify peaks and valleys; and maybe a sense of the weather conditions, to better plan accordingly.

In the world of life insurance, all of those tools come packaged up in our Illumine™ platform. Where traditional life insurance illustrations fall short, Illumine™ applies real-world market and product conditions to stress test the durability of any life insurance product and models out servicing strategies to ensure a policy stays in force through the unexpected.

“What happens if my premiums are different than I planned?”

“What happens if the carrier changes the terms of the crediting rate on a policy?”

“Am I committing economic waste by purchasing a guarantee?”

“Is the cheapest product really the best when applied to real-world conditions?”

Insurance is about the management and limitation of risk. But that is effectively impossible without the ability to truly understand the durability of a product and how it mechanically reacts to any condition. Illumine™ gives that insight, and more. As a tool for new business sales or inforce policies, Illumine™ is the best weapon available for measuring and understanding what is really going on behind the opaqueness of an illustration.

So could an insurance agent be a fiduciary? I don’t know, I’m not a lawyer. But with Illumine™, agents can certainly sell with a lot more confidence.

Calling attention to a problem without vigorously exploring or presenting solutions is like putting an elevator in an outhouse—it just doesn’t make sense.”
Matt Murphy
Co-Founder, The Ridgeback Group

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