How Much Do You Budget for Chargebacks?

[djs]

Josh - correct me if I'm wrong, but common sense will tell you there is a cost involved in writing a policy. If that policy is not taken (or lapses before cost recovery), that expense has to go somewhere.

Ultimately, it gets put back into the companies products, somewhere.

My question is how much difference does this really make? I can't imagine its a lot, or the method of business would change.

Dan

 

[donamese]

donamese:

You're talking about NTOs though and other stuff that gets a *full chargeback*.

I'll ask for a third time, what is the source on your claim that "it is those people that drive pricing up on the final expense product".

You're making a fairly interesting claim and I'd love to see a source on this. Are you just making this up or do you actually have a source?

The NTOs at AGLA are different in a major way because they are actually underwriting the cases. SI is a very different critter. Aside from a quick med check and a light MIB, they aren't really spending the time underwriting it the way a fully underwritten company does.

I was referencing the post where the guy that LAPSED 40% is still has 300K on the books and he is a great salesman.

Yes I used full chargebacks in the example, but I also used full annualized premium....the vast majority are monthly pay so that number is adjusted as is the debit balance. I was trying to keep number simple since it is difficult for people to grasp the pricing concept and that it takes years for profits...meaning business has to stay on the books.

My source are actuaries, call one of your carriers and speak with them about how the pricing works. It should be common sense if you just look at it but since it isn't, they can break down the math for you. And yes, I misstated that "those people" are the only ones driving up costs...high mortality is the other reason costs go up. I should have included that.

In regards to costs, MIB, prescription check, person answering the phone, all add up to costs even with simplified issue. It is cheaper than full underwriting, but it is still an additional cost on top of the 150% already paid out on commissions along with the other overhead expenses.

 

[MGA]

I will state it again IT'S IMPOSSIBILE to sell fe policies for 41 years and not have the first NTO.

Your posts do not make any since what so ever.

 

[Josh]

Josh - correct me if I'm wrong, but common sense will tell you there is a cost involved in writing a policy. If that policy is not taken (or lapses before cost recovery), that expense has to go somewhere.

I still want to hear from donamese since they are the one that keeps making claims and won't back them with a source, but I'll give you that there is *some* cost.

Ultimately, it gets put back into the companies products, somewhere.

Agreed.

My question is how much difference does this really make? I can't imagine its a lot, or the method of business would change.

Exactly. donamese has claimed that's what's driving up the cost of FE plans. The cost of underwriting a SI policy is negligible. Even with a POS interview and script check (which many companies don't do), I think the guy writing $300k/year of premium that sticks isn't really hurting premiums as much as the death claims. "Common sense" would tell you that a few bucks on a SI policy isn't going to drive up the cost like a $20k death claim. Is that having an impact on the cost? Maybe, but I think the cost of insuring people that are obese and/or develop heart conditions and/or any other major medical condition is having a much more meaningful impact on the cost than some administrative costs pushing some papers around. If there is evidence to the contrary I'd love to see it, but after three requests for a source none has appeared, so I presume there is none and it was all just a WAG.

 

[djs]

somarco, as I am a newer agent, I was hoping you could help me with some clarification on your post.

When you say "cable bill", are you including services like Dish Network and DirectTV, or purely cable?

I'm not sure about Somarco, but I always pay the important things first, which means I pay the cable, Dish and DirectTV, my 3 cell phone bills and make the payment on my big screen long before I pay my life insurance.

Heck, I can use the entertainment, but I found out I can't collect on my life policy!!!! Somebody else does. I have a much better use for that $17.95 a month!!!!

Dan

 

[rousemark]

Rouse
I did read what you said.

It's clear to me that you must have not wrote much fe business.

It's impossible to not have an NTO in 41 years

No donamese you must not understand. It's called reality. When any fe company makes changes to underwriting. commissions etc it's for one reason PROFITABILITY.

I take it you are calling me a liar.. So be it.. I qualified my statement simply because I do not make claims I can't back up. I have no idea how much FE business you have written but I have been witting it even before it was called FE. It was officially called Industrial Insurance which was just a fancy name for weekly premium debit insurance.. We wrote in $500-$2500 face amounts which would pay for a funeral in those days. When I was working the debit I was a member of NALU and always qualified for for the the National Sales Achievement Award and for the National Quality Award which required 90% 13 month persistency so I not only had decent persistency, it was based on a decent volume of business.. I can certainly back those claims as I am sure I still have the award certificates laying around somewhere.

Over the years, to the best of my knowledge, I have never had an NTO on a policy that was issued.

As a general rule, unlike some on the forum, I do not make, wild , exaggerated or unsubstantiated claims.
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I will state it again IT'S IMPOSSIBILE to sell fe policies for 41 years and not have the first NTO.

Your posts do not make any since what so ever.

At least I know the difference between "sense" and "since" ..

 

[Josh]

My source are actuaries, call one of your carriers and speak with them about how the pricing works.

I don't buy it. The actuaries told you that a driving force in premiums going up is the cost of issuing life insurance that gets cancelled? Earlier you said the actuaries don't even consider that as business. Maybe they find it as negligible as it appears it is?

It should be common sense if you just look at it but since it isn't, they can break down the math for you. And yes, I misstated that "those people" are the only ones driving up costs...high mortality is the other reason costs go up. I should have included that.

I didn't take what you said to imply that you thought they were the only ones driving up the cost, only that you think they are a meaningful piece of the problem. A guy writes $500k in premium and keeps over $300k of it and that helps make the entire thing more profitable. The increased profitability likely more than absorbs the added cost of the additional paperwork and administrative costs.

 

[MGA]

Rouse
So now you are stating you were a debit agent and in that market you never had an NTO. Come on. Be Real. Blow that smoke some where else.

 

[rousemark]

Rouse
So now you are stating you were a debit agent and in that market you never had an NTO. Come on. Be Real. Blow that smoke some where else.

I spent 3 yrs on a debit .. 2 years as a staff mgr.. National Life and Accident. Returned a few years ago to AGLA for a 5 year period when I needed health insurance coverage. Just for a clarification when I say NTO, I am talking about never having a policy issued as applied returned during the 'free look" period offered by the policy.

Just because you can't do it doesn't mean no one else can. After all we don't all sell over priced products using SL sales techniques..

Speaking of unsubstantiated claims, you never did back up all your brags about SL when asked.

 

[donamese]

I will call an actuary and see if they can provide the mathmatical formula that you will not understand anyhow (nor will I) and call BS on regardless.

They do have built in assumptions to price around for lapses. It is when these assumptions are exceeded that the products pricing is effected. If priced for 10% lapses in the first year but you get 20% things changed and pricing is effected. Much like mortality...you price for $15 million in deaths, but you end up with $20 million...have to reprice to fit the experience.

Mortality is the highest driver of rates obviously. A company takes in $150 on a client and has to pay $15,000 in death benefit, it makes a larger impact than the $700 commission check. Deaths make a larger impact cases by cases but they are much smaller in quantity than lapses. 1 death can be $25K but 40 lapses out of 100 cases adds up as well.
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Since you claim it is minimal...back that up with math. I would like to see how 40% lapses in the first year are profitable.

Just make easy numbers, $500 annualized premium, so 1,000 policies with 40% lapse rate, 150% gross commission, say 15% year 2 renewals. Feel free to use whatever you believe is a good figure for overhead costs on the product. If you can't do this then it is safe to assume your claim is just a WAG like mine.