What to look for in an insurance professional.

CPAs often collaborate with insurance professionals to analyze insurance alternatives and develop solutions to personal and business problems, including qualified and nonqualified retirement plans, tax planning, wealth accumulation and estate and business succession planning. In deciding which insurance professionals with whom to work, CPAs must ensure their clients have access to the best possible advice and the best possible products.

INSURANCE IN A CHANGING ENVIRONMENT

The environment in which insurance companies operate has changed dramatically in the past decade. Although the industry today is basically financially sound, buyers of life insurance policies should not take for granted a particular company's continued existence. Nor should it be assumed a life insurance policy's future performance will be as illustrated in a sales proposal.

Due diligence enables insurance professionals to make informed recommendations about insurance carriers and specific policy provisions. An insurance professional's failure to perform due diligence can increase the risk of

* Buying a product that does not meet the actual insurance need.

* Facing one or more unanticipated premiums after payments were expected to stop.

* Actually losing money through an insurance carrier's insolvency.

To properly advise their clients, CPAs must question both the insurance professional and the life insurance carrier. The quality of their answers, and the mere willingness to address difficult questions, can predict future policy service. CPAs need to do more than merely check the ratings of the insurance company an insurance professional recommends; they also need to scrutinize the insurance professionals themselves.

EVALUATING INSURANCE PROFESSIONALS

During the 1980s, many insurance agents, mostly large volume producers, became independent, leaving the companies whose products they previously had sold exclusively. To compensate for the market position the former carrier's name provided and the technology that company provided, independent insurance agents had to devise ways to position themselves as trusted insurance advisers. They did so by representing multiple insurance carriers and joining with other independent entities to develop referral networks.

Independent insurance agents bring objectivity to the insurance planning process through access to multiple insurance carriers, enabling them to recommend the right solution to the problem at hand. Many of today's more complex insurance cases are split between carriers to diversify the risk of placing large amounts of insurance with one carrier. Independent agents can accommodate this process and are experienced in managing the underwriting process on multiple carrier cases.

MEETING THE NEEDS OF SMALL BUSINESS CLIENTS

Many of the small business clients CPAs work with use life insurance products for a wide variety of needs, ranging from funding retirement plans to providing the liquid funds necessary to carry out buy-sell agreements. In advising these clients on selecting an insurance professional, CPAs should observe some rules.

Referrals. Network with insurance professionals whose businesses depend largely on referrals from CPAs and attorneys. Ask for references and call them to find out what reputation the agent enjoys with other CPAs and with attorneys. Find out if the agent understands the technical language CPAs use and if he or she has any special expertise that the CPA might not have. One way to judge an agent is the professional designations he or she holds. The best known life insurance designation is the Chartered Life Underwriter, granted by the American College in Bryn Mawr, Pennsylvania.

Client compatibility. Look for an insurance agency that matches the entrepreneurial nature of the small business client. Independent insurance agencies often exhibit the same entrepreneurial culture as the small businesses they work with. They understand timeliness, the need to watch costs, the necessity of using all available tax remedies to the client's advantage and the need to assure management All insurance professionals are not alike. To make a good referral, CPAs should look for someone who can substantially support the objectives of finding the best solution for the problem at hand.

continuity in the event of illness or death. An agent should be experienced in working with a client's team of other advisers and respect the technical competence each member brings to that team.

National network. Look for someone who is a member of a national network of insurance professionals such as the M Group, the Partners Group, First Financial Resources, the Hemisphere Group or Forth Financial Network. Independent insurance agencies often work in networks called producer groups. Agencies band together to form study groups to share state-of-the-art solutions to small business insurance problems. These groups afford members contacts across the country with the expertise CPAs' clients may need. Producer groups also offer purchasing power, electronic communication and transaction ability, proprietary software packages, research on insurance company financial data and management systems. Some producer groups influence product design and underwriting policies at the companies they represent.

Choosing from among these national networks involves looking at both the groups and the companies they represent. CPAs should find out who the group's core carriers have been in the last five years. Have any been seriously downgraded by the rating agencies or actually gone into receivership during the period? It's also important to find out if the organization has a strong national marketing image and reputation. Has it enjoyed steady growth in membership--which is a measure of its vitality? The group should have access to up-to-date technology that allows members to generate updated product illustrations.

ACCESS

No one insurance carrier can serve all of an agent's diverse product needs. Many top producers began as agents of one carrier and may continue to place some business with that carrier. What sets producer groups apart is their ability to find the product that best suits a client's insurance need. The product may be offered by one of the group's core carriers, by a company the group has a brokerage arrangement with or even by the company the agent formerly served as a captive agent. The key is access. CPAs who encourage their clients to do business with producer groups know their client will have access to that product when and if they need it.

RELATED ARTICLE: EVALUATING AN INSURANCE PROFESSIONAL AND BROKERAGE

1. Does the broker have a statement of corporate capabilities outlining the skills, professional designations and experience of all insurance professionals? If the client has an estate liquidity problem, look for an agency experienced in handling large estates. Similarly, some brokers have expertise with closely held businesses. The most common professional designation is the chartered life underwriter (CLU). Others include the chartered financial consultant (ChFC); designees have additional personal financial planning background. Membership in the Association of Advanced Life Underwriters (AALU) also should indicate a dedication to state-of-the-art planning techniques and current issues relevant to income, gift and estate taxation.

2. Does the broker communicate with prospects or clients regularly, sending out materials relevant to the kind of business they are engaged in? One example would be tax rulings or court cases addressing estate or business succession planning issues.

3. Does the broker readily share a list of CPAs and attorneys with whom its staff works regularly? CPAs should contact these referrals and ask them about their experience with the agent and whether a satisfactory solution to the client's problem was worked out.

4. Does the insurance professional have a reputation for serving as a resource for CPAs, taking a supporting role in client conferences rather than trying to take the lead?

5. Does the broker offer consultation skills, contribute to the design of the solution and suggest different ways of solving the problem rather than first mentioning an insurance product? Is he or she a broker, truly representing multiple insurance carriers or an agent, generally representing one primary carrier?

6. Does the broker openly disclose commission structures of products or consulting fees? CPAs should develop an understanding with the broker in advance about appropriate commission structures for particular products, carriers and services.

7. Does the office support staff offer to assist with questions when the agency's principals are unavailable? Do they have professional designations or educational credentials that complement the entity's principals as well as support the client's needs?

8. Is the CPA invited to visit the brokerage's offices to see their facilities and meet support staff? This is an excellent way of "kicking the tires" before referring a valued client to a new insurance relationship.

HAROLD INGRAHAM, CLU, is vice-president and chief financial officer of the Partners Group, Austin, Texas, a national producers group of insurance professionals. He is a member of the American Academy of Actuaries.