Dealing with the client concern over carrier financial stability
Most customers have a number of concerns about life insurance before they buy, such as coverage specifics and cost.
However, you may come up against a unique sales objection, and you need to know how to tackle it with confidence.
All consumers are concerned about the financial stability of carriers.
Investigating financial soundness of carriers
Since my early days in the insurance business, the most commonly asked question has been “How financially sound is the insurance company?”.
Before prospects would purchase a life insurance policy, they wanted to know if the the carrier would be financially able to pay the policy death benefit.
Today, insurance producers answer this question by showing the prospect various financial reports on the carrier(s) being presented to them -- which you can get as part of your insurance brokerage services.
In reality, this approach doesn’t always address the question appropriately.
That’s because the insurance company being presented is not necessarily the company that would be totally responsible for the risk.
Who’s really responsible?
So, who else might be assuming a part of the risk?
The answer is one or more reinsurers and retrocessionaires.
When it comes to explaining diversification of risk to your client so they’re comfortable, they should know that these behind-the-scenes insurance companies are their friends.
Simply put, reinsurance is a risk management tool used by insurers to spread risk and manage capital.
The primary insurance company transfers some or all of their insurance risk to another insurer.
The insurer transferring the risk is called the “ceding insurer” and the insurer accepting the risk is called the “assuming insurer” or “reinsurer.”
Ok, so maybe this blog might cure your insomnia, but if you want to come across as an expert, keep reading.
Understanding risk
Virtually all life carriers today buy reinsurance to improve their risk profile.
Currently, almost 90% of life insurers utilize reinsurance on some basis because it allows them to manage the large financial risks they assume.
To mitigate the potential liability for a single company, the use of reinsurance spreads the risk of loss between two or more companies.
And the risk can be spread even further if the reinsurer in turn transfers some of that risk to another reinsurer known as a retrocessionaire.
So how will you know if more than one company shares in the risk so you can explain it to your client?
More than likely you won't know, but you can ask your General Agent for that information. As part of the insurance brokerage services they provide, they’ll obtain it from life carriers, based on the reinsurance agreements they have in place and the amount of coverage your prospect applies for.
How it breaks down
Generally, the agreements the ceding company has with the reinsurance company fall under one of the following categories, indicating whether a reinsurance company is involved at all:
- Automatic Reinsurance. This is a reinsurance arrangement whereby the ceding company and the reinsurer agree that all business that meets a certain description will be ceded to the reinsurer. Under this arrangement, the ceding company performs all underwriting and decision-making within agreed-upon parameters for all business reinsured.
- Facultative Reinsurance. This is a type of reinsurance in which the reinsurer underwrites an individual risk submitted to them by the ceding company. These risks would be for unusually large cases, highly substandard cases or cases not covered by an automatic reinsurance treaty. These types of risks are typically submitted to multiple reinsurers for competitive offers.
- Quota share (also known as “first dollar” quota share). This is a reinsurance arrangement in which the reinsurer receives a certain percentage of each risk insured.
The bottom line is this:
If your client is concerned about the financial stability of the carrier you are presenting to them, show them the carrier’s financials first.
You can obtain this information from your General Agent, who provides insurance brokerage services for your organization.
However, don’t ignore the fact that there may be reinsurance involved.
This information can only further ease any client concerns regarding the primary carrier’s ability to pay claims.
And it just might help you make the sale, too.
