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Rethinking Big Cases

When Damon Winter sold his first big life insurance case back in the 1980s, it was a term life policy with a $1 million face amount. He had only been in the business a few years, so it seemed like a big case at the time.

The Oregon producer remembers having felt “deep satisfaction” over writing a case that large while also helping the client to obtain coverage that was badly needed to protect a thriving business. But he says he quickly realized that the case was “not that big of a revenue generator.” This got him to thinking about big cases from a new perspective – in terms of total revenues and not just face amount or first-year commission.

Now a member of the prestigious Million Dollar Round Table (MDRT), Winter focuses his big case strategy on sales that produce recurring revenue streams.

Along with Winter, producers all over the country are reinventing industry notions of the big case, to the point that today’s big cases really aren’t your father’s big cases. That is, there is no universally recognized face amount or product type for big cases. Rather, advisors more often speak of the cases in terms of premiums, commissions, fees, assets under management, total account value, customer value or some combination of those factors.

What’s more, the dollar amounts they ascribe to the cases vary widely. That’s due to the vast differences that exist in advisor experience and expertise, business location, practice model, target market and case characteristics (commercial or personal, individual or multi-life, and term, perm, variable or indexed).

Today, the big case can be thought of as a strategy, a thought process and an approach to the insurance needs of wealthy clients. If that sounds a bit nebulous, that’s because it is. But make no mistake, landing a big case is still the big story in life production, and the “heavy hitters” are widely revered for their success and expertise, as well as the inspiration they instill in others.

A Look Back

To understand the big case world of today, it helps to remember where it came from. Fifty years ago, life insurance agents focused mostly on face amount. They would speak enthusiastically if they sold a whole life policy with a $30,000 face amount, and a $100,000 whole life policy was a jaw-dropper.

Due to inflation and a host of business trends, those face amount numbers crept up. By the mid-1980s, a $100,000 whole life case was considered “nice-sized,” recalls Winter, who is a financial planner at Majestic Eagle Agency in Clackamas, Ore. In the next decades, the face amount benchmark rose to $1 million, $5 million, and more – a development helped along by lower rates due to new actuarial tables and also more rate classification categories.

Along the way, advisors took to mixing in various kinds of life policies – term, whole life, universal life, variable universal life, first- and second-to-die plans and, in recent years, indexed universal life – and distribution business models expanded to include not only career, but also independent, brokerage and alternate.

With so much transformation, new thinking about big case parameters inevitably emerged. The production requirements for MDRT membership expanded right along with the industry trends to where they are today. Long considered the minimum benchmark for entering the realm of the big case hunters, they are still viewed that way. But advisors are setting other, more personalized big case benchmarks, too.

For Stephen N. Mathieu, the benchmark is commission. For instance, he recently wrote a $500,000 whole life policy with a $30,000 annual premium. The commission will be $20,000 to $25,000. “That’s a decent-sized case in the personal market,” he says.

But in the business market, a good-sized case would produce a commission of $75,000, adds Mathieu, who is the president and investment advisor representative of Legacy Financial Solutions, Manchester, N.H.

For cases that involve both insurance and investments, he includes the commission from both types of products in assessing the value of the case.

What about producers who write a lot of term or universal life in the personal market? Mathieu thinks they might be better off measuring a big case by face amount rather than premium. His reason: “The value provided to the client is always the true measure of the end result. If the agent or broker has provided a maximum amount of value for a fair price for minimum money expended, that’s a job well done.”

The state of the agent’s career development makes a difference, too. “For someone in the business only three years, a $15,000 commission would be very large, especially since the family and small business cases often pay much less,” Mathieu said.

Mathieu recalled that when he went to his first MDRT meeting, he had produced $140,000 in commissions that year when the minimum requirement was only $50,000. “I felt good about that,” he says. “But then I met guys who were getting four or five times what I had made, and I began to realize that there was a long way for me to go before getting to the really big cases.”

This awareness had a profound impact on him. “At MDRT, you see potential much greater than you had imagined. You get to talk to people who tell you what they are doing to land those really big cases, and you realize that the walls you have around you are self-imposed. At MDRT, you get to see what’s going on outside of those walls.”

Those comments speak to the power that big case lore has in the life of many producers. They say that hearing about big cases inspires and informs them, while introducing them to concepts that may help them build the expertise they need to move to the next level – and thus to be of even greater value to clients.

For them, it doesn’t matter that the big case definition has become a relative term in comparison to 50 years ago. It matters that big cases exist, and that the producers keep telling those stories.

Incidentally, Mathieu said that even though he measures big cases by commission, he thinks in terms of service. “I don’t even know what the comp will be on any one product until I write the case and see the number after the fact,” he said.

His focus is on picking the policy that fits the client’s needs, he said. “I want clients to walk out of my office knowing that I did something that made them better off than they were when they walked in, even if it turns out they don’t need life insurance but they do need to go to an accountant or an attorney.”

Stephen N. Mathieu’s big commission case: “This was my first big case. It was for an older woman. She needed a $2 million life policy in charitable trusts and $2 million in various investments for which we were compensated on an annual basis. The life policy comp was $60,000 first-year plus premium renewals, which ran for five years until she died. The investments generated $20,000 a year, and when she died, the investment value had grown to $3 million. I already had my CLU and ChFC, and that was critical, because it took all that education plus doing all the little things along the way to gain the knowledge and confidence I needed to write larger cases. I believe that these cases come along when you know how to bring them to fruition.”

A number of advisors say premium is the primary measure they use in determining whether a case is big or not. That’s because premium reflects revenue, and revenue provides the basis for earnings on which the advisor will live and build the practice.

Robert Miller provided a case in point. “For me, $100,000 of premium is a big case,” said the partner at Miller-Pomerantz and Associates, New York City, and immediate past president of National Association of Insurance and Financial Advisors (NAIFA).

That’s not a benchmark for all advisors, he cautioned.

In New York City where Miller works, the cost of living is quite high, so $100,000 in premium makes sense. “But for the majority of life insurance producers, if you earn $30,000 on a sale, that’s a big case.” In some areas, a big case could be $37,000 a year in premium for a $5 million 20-year term policy for a woman in her 50s, he said.

Even that is relative, however. “The average member of NAIFA grosses under $100,000 in income a year, so if that’s you, a case with a $5,000 premium is a big case,” Miller explained. For someone making $5 million a year, it wouldn’t be a big case at all.

When he does talk about face amount, Miller typically looks at what the client needs. In his practice, he says he doesn’t even talk to people wanting under $1 million because, in New York, such a death benefit won’t go very far if the client has a stay-at-home spouse, two kids to put through college and a mortgage to pay off.

Big case work is not without disappointments. Miller told of an “old, crotchety lady with health problems” who had agreed to coverage that would earn him several hundred thousand dollars in premium. “It took eight months to issue the policy, and we got it written at Table F,” he recalled. “But when I went to deliver it, she nixed the deal. She said, ‘I’ve realized I hate my children so I’m not buying it.’ ”

That was “painful,” Miller said ruefully. “I had spent so much time and energy on it, and I got nothing out of it.” He admitted he was depressed about losing the case – “but only for one night.” The very next day, he was back selling, and he has landed other big cases since then.

Robert Miller’s big premium case: “Several years ago, I wrote a monumentally large case for one of the largest corporations in the world. It entailed writing several thousand separate whole life policies on the employees for a total premium of $150 million. It took 1.5 years and a lot of work. There were times when we had it and then didn’t have it. But we did get the case and we received a percentage of the premium over the next seven years. It was like having an annuity for seven years.”

Sherry K. Barton, a New York Life agent in Oklahoma City, uses premium as her measure, too. “I’m commission-based, so I look at the premium,” she explained.

But a big case for her is different than it is for producers in Miller’s neck of the woods. In Oklahoma City, the cost of living is much lower than it is on either coast, she points out. “A $350,000 home in my town would be phenomenal. It would have 4,000 square feet, a big backyard and a circular drive. In California, such a home would cost maybe $1 million, but not here.” As a result, many of her clients do not need as much coverage as they would if they lived on one of the coasts.

Among her 3,000 clients, Barton has six cases that she describes as big. Each has a $1 million whole life policy for which the client pays monthly premiums of $1,000 or more. Some of these cases took 20 years to land, Barton laughed, explaining that some began as term life policies that the clients later converted to whole life.

To land a big case like that, Barton said she gets in front of a lot of people and writes a lot of smaller cases, even ones with premiums as small as $75 a month. Then, she said, she stays in touch with the client, “because lives change, and you never know what will happen.”

Apparently, that approach works. She has qualified for MDRT for 25 consecutive years.

Sherry K. Barton’s big premium case: “One man started out paying $242 a month for a $1 million term contract. It was related to a loan he was making from a bank. Then, three years later, he called saying he was in the chips and wanted to convert. He did convert – into a $1 million whole life policy with a monthly premium of $2,300. For me, that’s a huge case.”

Dick Weber, president of The Ethical Edge, Pleasant Hill, Calif., used to be a commission-based producer, but for the last 20 years, he has been working on a fee basis, as an insurance expert on cases brokered by someone else.

In his business model, fee-based advice is not a replacement for the life insurance broker. The independent expert’s role is to provide sophisticated analysis from a life insurance perspective strictly on behalf of the policy owner (insured or trustee), but in collaboration with the insurance broker and other team members.

There is another fee-based advice trend that is also developing, noted Weber, who is national president of the Society of Financial Service Professionals. This other trend may add to the confusion about how to define and strategize over big cases.

The old “monolithic model” of company-agent-client is starting to break down, Weber explained, and some advisors are starting to work on a fee-for-service basis. These individuals may measure their cases based on the size of the fee, but even if they hold insurance licenses, they may lack the insurance expertise required to place big cases, Weber said.

They may not know about sophisticated underwriting approaches, for example. Or they may not know the carriers or the reinsurance issues, or how to optimize the insurance for the client. They may not know about what happens when the insurance is held in a trust, or about the fiduciary liability issues related to trust ownership.

In his view, “the only way the fee-based advisor can bring the benefit to a big case client is to have a licensed and experienced insurance broker in on the case, too.”

It’s not enough to rely on the advanced sales specialists at the insurance companies to provide this expertise, he maintained. Although there are exceptions, “few of them know how to sell insurance.” Selling skills are definitely needed when working big cases, he said.

Dick Weber’s big fee case: “A large national accounting firm was working with a closely held business and the family. The firm was concerned about a decision that had been made to buy a $250 million no-lapse universal life policy on the 29-year-old owner, and so wanted me to serve as an independent life insurance expert to review the company’s decision. Among other things, I found that the future value of a fixed death benefit had not been taken into account. There were other problems too, but the end result was that it became a $350 million case, involving 17 carriers and policies in a portfolio that was 30 percent whole life, 20 percent guaranteed death benefits, and 50 percent overfunded variable universal life. It took a year to complete and I received a $50,000 fee. No other big case has been as sophisticated or challenging for me as this one, and I felt every bit as good about it as I did on previous big cases where I was the broker who placed the business.”

Some producers take a type of combo approach to assessing a big case.

Mike Kiley is in this category. The chief executive officer of Chamberlain Group, an Irvine, Calif., independent brokerage firm, said that for him, “it’s truly a big case if you have a face amount of $100 million or more, a premium range of $300,000 and up, and reinsurance arrangements that need to be ‘managed.’ ”

Reinsurance management? That’s right, he said. When a big case is on the table, the carrier or carriers under consideration may retain only, say, $30 million of total face amount. They may have automatic reinsurance to back the next $20 million, and if the face amount is higher, something will need to be done about the reinsurance.

Sometimes, additional carriers are brought in, but these companies may have reinsurance arrangements that conflict with those of the other insurers.

The advisor who is on such a case will need to decide not only which product is best for the situation and which carrier has that product, but also which carrier has a suitable reinsurance relationship, Kiley said. If other carriers are involved, the producer will also need to look at whether the reinsurance relationships result in gaps or overlaps in reinsurance.

In addition, the advisor needs to manage the underwriting process, Kiley said. “You need to know everything that’s in the medical profile, including where the client travels, how often, and what hazardous activities the client may be involved in.” This is critical, he said, “because the carrier will pull its offer if new information arrives in this area while the policy is being written. The underwriters will want the fresh information.”

At his firm, then, a big case is not just a matter of premiums and face amount. It’s also a case that requires reinsurance and underwriting management.

These are skills that will help the producer set up the ideal portfolio for the client, Kiley stressed. “You need to structure the case properly in this market. And keep in mind that in some situations, it will make sense to diversify carriers and products because of the reinsurance relationships as well as capacity issues.”

Mike Kiley’s combo-factor big case: “A big case will be one that has, say, $100 million in premium on the parents, who could be owners of a family- owned business. The case might include $300,000 to $500,000 in premium for coverage on the children in the family. So the case will entail multiple millions a year in premium, and it will require a producer who can do reinsurance management as well as underwriting management.”

Damon Winter, the Oregon producer mentioned at the opening of this article, has a type of combo approach, too. He looks at big cases in terms of the total revenue they create for his firm, preferably recurring revenue. Total revenues could include premium from whole life insurance written with renewals, universal life with levelized commissions and assets under management on the investment side.

This means that a big case, in his practice, is not always known by a total big number up front. Instead, he is looking for a substantial recurring revenue stream, from multiple sources per case, so that the business will have an attractive value when the time comes to transition his practice to another rep later on.

“Without recurring revenues, who will want to take it over?” he asked. “Without a business continuity plan, what will the clients and beneficiaries do? Clients do ask what will happen if I go out of business.”

For these reasons, Winter’s referral-driven practice uses a relational business model, not transactional. “I am looking for cases where I will enjoy working together with the client over a long period. The first measure for me is not how big is the asset, estate or potential revenue stream. The first question is, are we a good fit, and can I truly help the client?”

Another measure is, “is this account going to be profitable?”

He said he works on commission and fee. Virtually all the bigger cases in the firm are estate planning cases with minimized taxation a key focus. “If it works out that the client will need new life insurance, I would expect the client to implement with me,” Winter added.

Damon Winter’s total revenue big case: “Years ago, a widow in her 80s had money in annuities. Her goal was to pass that money on to her children when she died. But since the children would have to pay ordinary income tax on the gain, we put together a strategy using gifting that resulted in a lifetime guaranteed death benefit universal life policy being written on the woman with a first-year premium north of $40,000 and a fairly low renewal commission. She was rated preferred and lived 12 more years. Upon her death, the business continued through the children and grandchildren, on whom we wrote universal life policies that paid renewals, term life policies, variable annuities with trailers, and assets under management. So the recurring revenue stream continued, and expanded, with the second and third generations.”

Do Big Cases Really Matter?

With so much variety in big case depiction, an inescapable question arises. In the grand scheme of things, does having what peers consider to be a big case even matter?

It absolutely does matter, said Kiley. “A lot of the work we do is joint work that’s brought to us by an inexperienced advisor. The cases come to us because the advisor knows we can do big cases. That’s important to the client, to the underwriters, and ultimately to the advisor.

“Everyone needs to know that you have the experience and expertise to write those cases properly. The bigger the case, the more steps are involved and the greater the complexity.” So big case skills are good for the clients as well as for the advisor’s business.

Linda Koco, MBA, is a contributing editor to InsuranceNewsNet, specializing in life insurance, annuities and income planning. Linda can be reached at [email protected] [email protected].

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