Annuities, A Critical Vehicle for Retirement

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Beyond the Challenge is a podcast where executives in the insurance and financial services industry share their insights and experiences. Hosts Kevin and Sandy Dougherty talk with today’s top business leaders about what keeps them up at night and the biggest opportunity organizations can capitalize on today. We encourage you to listen, share, and subscribe to our program.

Kevin and Sandy Dougherty each have over 20 years of experience in insurance and financial services, corporate leadership, and executive search. They’re the owners of Global Corporate Solutions and Global Corporate Leaders. Global Corporate Solutions partners with organizations to gain efficiencies and contain costs. Global Corporate Leaders partners with organizations to enhance and evaluate talent.

Beyond the Challenge podcast is sponsored by Exactuals, perfecting payments and the data driving them; Techficient, transforming the protection journey with intelligent data and machine learning to drive better outcomes; and JourneyGuide, improving your clients’ retirement outcomes through interactive planning software.

Welcome to Beyond the Challenge. Here are your hosts, Kevin and Sandy.

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Kevin: Today, we’re talking with Rick Hodgson, President and Head of Insurance at CL Life and Annuity, about the trends, challenges, and opportunities he sees for the insurance industry. Rick has extensive experience as a CEO leading multiple life and annuity insurance companies and reinsurance companies and is recognized as an industry leader in the US and internationally. Rick, can you tell us a little bit about yourself and how you got into the insurance and financial services industry?

Rick: Well, thanks, Kevin. Good to be with you and Sandy. So I’ve been in the financial services 40 plus years. I’ve had experience in the life annuity, health, personal accident, both domestic and international. I’ve seen the good, the bad, the ugly, and you kind of learn from experiences, as I’ve often said to people. You may not always know what to do but you definitely know what not to do. And you’re only as good as your team and colleagues. You need to respect all opinions and there’s a reason you have two ears and one mouth is really to listen and then act upon things. So, I think I’ve been a little bit lucky in being with good organizations and with good people but, overall, it’s been a good joyful ride and not ready to ride off to the sunset quite yet.

Sandy: Thanks, Rick. As a leader who has worked both internationally as well as domestically, how is the US insurance landscape different from the European insurance landscape as it relates to savings products?

Rick: I’ll take the European first if I can and then I’ll end up comparing it. So, in Europe, they’re used to more savings products. They’re almost all unit linked and the definition of unit liked is there is a life insurance component and an investment component. And so they’re in it for the long haul and they usually do a lot of things through bancassurance, whether it’s strategic partnerships, etc. Very not as much kind of focused on the IMO, independent marketing organizations, and distribution and tends to be more wealth transfer rather than just short-term insurance. If I look at the US, usually very much a term product environment for certain periods of time, whether it’s a young family, I’ll take term insurance until such time as fiduciary responsibility for the family has finished, out of college, etc. They tend to play more of the stock market time in the US constituents, and I think up until some of the volatility in the stock markets, they weren’t as focused on insurance savings products. They used to be the old buy term and invest the difference and so when they looked at the returns coming kind of out of the cash value side of a typical life insurance policy, they thought they could do better in the stock market. I think the mentality is changing a little bit in the US and people are understanding that there needs to be more savings vehicles that they can more or less connect with relative to the stock market where they’ve typically looked at returns, etc., from there, so volatility. So what we’re seeing right now especially more of the baby boomers getting involved with fixed annuities with guarantees as an adjunct to social security. So I look at those as the two differences between the two continents and you have it from there.

Kevin: Thank you very much. Rick, what do you see as the future of distribution for the industry, such as agents, direct to consumers, and embedded products?

Rick: Yeah, that’s an interesting question, Kevin. The buzz has always been insurtech and I think that fits more in the property/casualty business. The life insurance side is more of the ability maybe to be able to have less invasive types, like pyramids and things of that nature swapping rather than having to take blood, but in the annuity world especially, our business is sold, it’s not bought. It’s not like the PNC where you have to buy auto insurance or you have to buy home insurance for mortgages. So, at CL Life, I can tell you that our client is distribution. We can’t get to the end policyholder, okay? I think it’s fictitious for a number of companies to think they own the policyholder. And when you are ending up writing a check for $25,000, $50,000, $100,000, you want to know that there’s somebody on the other side and that’s where the distribution comes in. And I think that in any savings vehicle or whatever, there needs to be somebody who understands the product to be able to convey that to the consumer in a way that they’re very, very comfortable. So, I don’t see D2C, meaning direct to consumer, really being viable in the market right now. In 10 years, where you have maybe the Gen Z group, even outside of the millennials, who do everything on the phone, that might be a different story, but for the foreseeable future, our products are sold, not bought, and without distribution, I think it’s very difficult to access the consumer.

Kevin: Rick, how is the annuity market adjusting with changing interest rates and higher inflation?

Rick: Well, it’s not surprising that with the rise in interest rates that annuities are an attractive vehicle, as you’re well aware of the inside build up is tax free until such time as monies are taken out, okay? And when you look at the stock market volatility right now, the way that we try to explain it in today’s market is that we’re an adjunct to social security, okay? We have MYGAs, Multi-Year Guaranteed Annuities, and that’s our bread and butter. That’s where we think it fits well within our suite of products and our asset management capabilities, and our idea is to provide those types of products to our distribution group who then would provide that to our consumers. So, with inflation and other things where the consumer is trying to keep up with inflation, and whether that’s food choice or whatever, they understand that social security is not going to be there to be able to supply that economic value all the way for their period of time. So, they need to have something in addition to social security. And then there’s others that are looking at wealth transfer. They want to be able to pass something on, whether it’s to their children or grandchildren, etc., and we see the fixed annuity market being a good product line for that type of business.

Sandy: So, based on that information, I’m guessing you see annuities playing a much larger part in the retirement market over the next few years?

Rick: Absolutely. As the US population ages and the number of retirees increase, they should naturally look to migrate to lower risk, lower volatile assets, okay? And then provide a guaranteed source of income. And 2022, as an example, was an unusually volatile year and showed the benchmark and that 60/40 stock to the bond portfolio is not immune from market forces and annuities can provide a vital backstop to those approaching or in retirement by offering a guaranteed return that won’t fluctuate with the market and peace of mind was severely undervalued in the zero interest rate market and annuities now provide that peace of mind.

Sandy: Great. So, on another topic, what type of strategic partnerships do you see as the most important for an insurance carrier such as yourself?

Rick: Well, I often say to our group and externally we’re not for everybody, okay? We have a niche, we have a vision, we have a strategy we have in place, but distribution is critical to our ability to grow and we want our contract to be of value to distribution so what we’re looking to do is find good partners who value our business, who value our business model, who value our contract, who value our competitiveness in the market, and we look to work with those distributors to be able to provide the types of products that their consumers or their clients want, okay? Again, we’re not for everybody. One of the conferences I was at was where a number of companies were kind of revisiting all things to all people. And in our particular situation, we had no legacy business so we had no issues that we had to deal with first in order to put our strategy to work. So, in our particular situation, we think that working with our distributors, listening to them, deciding how we can meet the middle ground, because, obviously, there’s some give and take in both instances, but we listen to what they do, what type of products they really need to be able to sell that differentiates them, because they’re competing in their market themselves with other distributors, and we think we’ve got a good start to where we are. We, again, don’t want to be everything to everybody and we’re trying to stay true to our vision and our strategy and working with those people who value that type of relationship.

Kevin: Rick, what do you see as the biggest opportunity for the annuity and insurance industry over the next three to five years and how do you lead your team to continue to innovate and overcome challenges to make the most of the opportunities?

Rick: If I had the exact answer to that, Kevin, I could probably go to Vegas for a while. But I think in terms of closing the insurance coverage gap, and, again, when I mentioned that previously, adjunct to social security, a lot of kind of the American philosophy is to buy things, not save, and then they get to a point in their life where they’re like, “Well, wait a sec now, what am I gonna do if all of a sudden I have either a forced retirement or I require additional monies, etc.?” and I think that to close that gap to make them comfortable, that there is additional product value out there that helps them close that I think is vitally important. And the other thing is redefining the customer experience to make it less onerous to obtain the insurance in the annuity side. How we do that is more maybe from a technology standpoint, in other words, using technology, and I’ll give you maybe a real minor example of it, okay? So, a distributor goes out there and sells to six or seven of his clients. Those six or seven clients are 200 miles away. He or she wants to deliver the policies in person, this is part of a personal situation, but doesn’t want to make individual trips, okay? So saves up and says, “Hey, those seven policies are gonna be issued very quickly,” that’s one of the things we’re proud of is to issue our policies quickly, and they know within a week they’re going to get the policies, and then he or she will make the trip up to deliver the policies, etc. But in the meantime, we’ve received a check from the client, the client wants to be able to go on the web in our website and know that their monies are earning interest. So even when the policy hasn’t been delivered, they want to see that it’s there. And if you’re slow or the technology doesn’t allow that to do it, now, the customer has a bad experience, right? Because they’re sitting there saying, “How do I know that my interest is being credited? I didn’t see it up there,” and that’s one of the things that we’re proud of is we’re able to get that on the portal right away and the customer gets an email immediately, etc. So that’s by helping using technology. I’m not having technology run my business but I’m having it support our business. So that’s where we think that clients or customers from the distribution standpoint are happy because they’re able to see things, touch it, and we’re using technology to help them in that situation.

Kevin: Rick, what is one of the best decisions that you made that had a positive impact on your career?

Rick: You may find this interesting, it was to take a chance and leave an organization that didn’t value input or allow growth. And it wasn’t like — I could have stayed there for 20 years and been very, very comfortable and come in and flip the switch on, nine to five, and been very happy with that as far as kind of continuity consistency, but I ended up moving to other organizations, and once you make the first move, it’s a little easier because you know you can adjust. It’s always the first particular move that’s the toughest because you’re thinking, “I’m gonna grow up with that company, I’m gonna retire with that company,” etc., from there. So I think that aligning myself with the right companies through my career who had kind of the same visions and strategies were important. There were some companies where it didn’t go as well as I wanted to, and having the confidence to know that I could leave and do something else I think was probably the most important I did.

Sandy: So, based on that, what advice would you give to somebody looking to get into the financial services or insurance industry?

Rick: What’s interesting, I think about it for somebody that wants to enter is that there are multiple disciplines and multiple opportunities for multiple personalities, okay? If you’re outgoing, you could be in marketing and sales. If you’re more internal focused, you could be in operations and product. And I think there’s few opportunities where you can enter an organization and move around and maybe start out as internal but you really want to be external. And I think in the financial services area, a lot of times, we apologize for being in the insurance business. It’s the old adage of when you go to a party, you want to sit there and go, “Oh, my God, don’t ask me what I do,” and it’s funny because when I go to — whether I’m out on the golf course or I’m with neighbors, etc., and they ask what I do, I say I provide a value product and it’s a product I believe in, which is annuities, and the number of conversations I get into where people go, “Well, you know, I was looking at the stock market and this and that and my return’s never been all that good and one day I lose $20,000 and then it takes me six months to somehow get back,” and I go, “Well, buy an annuity. It’s guaranteed three years, five years, it’s compounded, and your money’s safe, and we’re rated by the rating agencies and AM Best and KBRA,” and so you have to have a passion for the business, okay? No matter what business you enter. I say that people when I bring them on two things, one is I get you in the door, the rest is up to you, okay? And then the second thing is, after a couple of months, you know what your paycheck is so you better like the business you’re in and you better have a passion. And the other thing is you have to have a willingness to always compete because it’s such a dynamic market that you go to bed at night, you wake up in the morning and there’s new competitors coming in or a new product coming out so you can never be satisfied with the status quo. So if you’re willing to compete, do your homework, work hard, work smart, as I say to people, think smart, I think there’s great opportunity in the financial and insurance marketplace.

Sandy: So, if somebody’s going to college, do you see the industry itself going forward? I see a lot of risk degrees going into insurance, there’s always financial actuary that goes into insurance. I mean, what area do you think is really going to — we’re going to use take off. I see risk simply because there’s cyber risk and every other type of risk and the changing markets and everything else that understanding the risks involved, which can go actuary or any other direction, is probably really important. Do you see more of a sales or risk or where do you see the friend maybe in the industry?

Rick: That’s a really good question. When I first started, I started in the actuarial side and they told me, “Look for every risk in the world,” and I did. And then they took me to the other side of the world and they said, “Now you have to write business,” and I said, “Well, you started telling me to find every risk. I found every risk,” and they said, “Yeah, but then you can’t be in business because you can’t write any business.” I think risk management is critical but you have to be able to balance both sides of the equation. I have this discussion a lot with people who don’t understand kind of our capital raise in our business. Capital just doesn’t come in to an organization, you have to fight for capital, etc., from there, and, obviously, shareholders want returns and things like that. So, I think overall risk management component in an environment where you bring people in and you say to them, “It’s not just one dimensional,” and it’s funny you kind of mentioned that, Sandy, one of the things I always thought about was, when I retired, I could go into teaching risk management and say, “Let me tell you what happens when you first start out, okay? And it happened to me, and, boy, don’t write any business, it’s too risky,” and then the other side is, “Well, if you don’t write any business, you’re not going to be in business.” So there has to be that balancing effect of it and I think if you use the adage of think smart, do your homework, understand your data points, I think data is critical but it’s also historical, it doesn’t always mean that, going forward, the same pattern is going to happen, but the more that you do your homework and have data and think smart, risk management, I think, just kind of becomes an evolution in itself. But I think that what people are looking for in our industry now is a combination, not pure sales and not pure data actuarial, it’s kind of crossing over a little bit, and I think people who are well versed and well balanced in both sides of the business. And I was lucky in that way. I was able to see both sides of the equation. And I think if you take a few risks in the sense of being on different sides of the business and seeing it from their point of view, like what does distribution see when they look at it, what does operation see when they look at it, you’re going to have a pretty solid career in this business.

Kevin: Rick, thank you for your time today. It’s been great to hear your insights on how the insurance industry is changing and what you see for the industry over the next few years. Thank you very much.

Rick: Appreciate it. Thank you.

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