Tag Archives: budget

retirement

75% of People Not on Track for Retirement

A new study shows that three in four Canadians are not on track for retirement. With the recent economic turmoil, many working Canadians are struggling to make ends meet as it is. The same survey indicated that half the population is living paycheck to paycheck, and very few have any emergency savings built up. Living in the moment means that they’re not focused on retirement goals, and many expect to be working several more years as a result.

Although workplace pensions, the Guaranteed Income Supplement (GIS), Old Age Security (OAS) and the Canada Pension Plan (CPP) can provide funds, it’s often not enough. Moreover, the higher your income is now, the less likely you are to have your future needs met by these types of programs. If you’re among the 75% who are not on track to retire, here are the changes you need to make now:

Take a Hard Look at the Money Coming In

You’ll need to set a budget, but long before you get to it you must have a full accounting of how much money is coming into the household. Then, you’ll need to deduct between 20% and 30% of the gross for emergency expenses and retirement. Focus on building emergency savings that will cover you for three to six months first.

Eliminate Bad Debts

Carrying a balance for a mortgage or vehicle isn’t usually a problem, but more and more Canadians are maxing out credit cards and racking up other smaller debts. These things should also be knocked out of the way first.

Say Goodbye to Luxury Spending

While the older population is much better at assessing value and affordability, the younger generation is geared toward luxury items. Expensive cars, lavish clothing and trending technology add to debt. If you aren’t on track for retirement, and you’re carrying unnecessary debts, you should get yourself back on track and only purchase essential and value-oriented products.

Reevaluate Your Investment Choices

Unfortunately, many investment firms take a chunk of payments, and they fail to deliver in returns. Do a cost-benefit analysis and see if you need to consider moving your money to another firm or program. Diversification, both on a local and international level, is essential, as it provides a kind of insurance in case the economy falters. Think beyond stocks, as well. Bonds, commodities and real estate holdings can provide extra layers of security.

Use a Budgeting Program

There are numerous options available, but they all serve the same essential function. Using software or an app to track expenses takes the brainwork out of it and enables you to stick to your budget without having to work so hard.

Incrementally Increase Retirement Savings

As you pay off your debts and eliminate your mortgage, and your children become self-sufficient, you’ll obviously have more money to spend on yourself. Many people jump into doing the things they’ve been holding off on, like vacations and home remodels, but this becomes a slippery slope. As you find yourself free of expenses and debts, it’s imperative to increase your retirement savings, as well. During your last decade or two of work, your goal should be buildings toward setting aside 60% of your income for retirement. Some of the cash should go into savings, but a fair amount should be invested into dividend-paying stocks, which will add a steady trickle of supplemental cash as your non-working days progress.

Reevaluate Your Goals and Get Expert Advice

Even though most people can benefit from visiting with a financial planner, very few people do. You don’t have to be wealthy to benefit from one, either. A financial planner can help you figure out ways to minimize debts and how to save and may be able to help you get lower interest rates on the debts you already carry. If you choose not to visit a financial planner, you should still reevaluate your budget and strategy on a regular basis. This way, you can find ways to increase your savings if you aren’t setting aside enough, or enjoy more of your income now, provided you’re on track for retirement.

There was a time when a person could outright retire at a certain age, but it’s not like that any more. Today’s workers have to contribute more on their own to be able to maintain the same standard of living, and they have to work longer to be prepared. It’s still possible to retire at about the age your parents and grandparents did, but it requires more planning on your part.

uncompensated

Time to Focus on Injured Workers

When WorkCompCentral released a report, The Uncompensated Worker, I wrote about how a work injury affects family finances. I applied several realistic work injury scenarios to each state. In 31 states, workers receive a reduction in take-home pay of 15% or more when they’re injured on the job. In half the states, households with two median wage earners—one on work disability and the other working full time—cannot afford to sustain their basic budget.

These findings confirmed what workers’ comp claims adjusters, attorneys and case managers already know: Many injured workers live on the edge of financial collapse.

But the findings are by no means conclusive.  The research done for “The Uncompensated Worker” was too limited. I know, because I did it. To really understand the financial experience of being on workers’ comp benefits, one should run not a handful but thousands of scenarios through a statistical analyzer and then compare the data results with actual cases researched through interviews.

The research agendas of the workers’ comp industry rarely involve looking at the worker her or himself.

Instead, the industry has funded research mainly to understand the drivers of claims costs, specifically medical care. This focus can be explained. Over the past 25 or so years, the workers’ comp industry has absorbed a huge rise in medical costs, more and more layers of regulation relating to medical treatment and even more specialties needed to deliver or oversee medical care.

To illustrate the extent of this industrial-medical complex: Nationwide spending on “loss adjustment expense,” a proxy for specialist oversight of claims, has grown annually on average by 9.4%  since 1990, while total claims costs have risen on average by 2.5%.

The quality of industry-funded research has improved, because of better data and strong talent pools in places like the Workers’ Compensation Research Institute (WCRI), the California Workers’ Compensation Institute and the National Council for Compensation Insurance. Their research focuses on cost containment and service delivery. These two themes often intertwine in studies about medications, surgeries or medical provider selection.

It’s time to pay more attention to the worker. Close to a million workers a year lost at least one day from work because of injury.  We hardly know them. Bob Wilson of Workerscompensation.com predicts that, in 2016, “The injured worker will be removed from the system entirely. … Culminating a move started some 20 years ago, this final step will bring true efficiency and cost savings to the workers’ comp industry.” Industry research, one might say, has left the worker out the system.

An example of how the worker is removed can be seen in how the WCRI did an analysis of weekly benefit indemnity caps. These caps set a maximum benefit typically related to the state’s average weekly wage. (The methodology has probably not been critiqued by states for generations, despite better wage data and analytical methods.) The WCRI modeled different caps to estimate the number of workers affected. But it did not report on what this meant to workers and their families; for example, by how much their take-home benefits would change.

As it happens, Indiana is one of the worst states for being injured at work; it has close to the stingiest benefits for a brief disability. You are not paid for the first seven calendar days of disability. Benefits for that waiting period are restored only if you remain on disability for 22 calendar days. Take-home pay for someone who is out for two weeks or less will likely be 83% less than what it would have been without injury. An Indianapolis couple, both at the state’s median wage, cannot afford a basic month’s budget for a family of three when one is on extended work disability. These poor results are partly because of Indiana’s benefit cap, which is one of the lowest in the country. The weekly benefit cap used in the report, a 2014 figure, was $650.

Les Boden, a professor at Boston University’s School of Public Health, read a draft of “The Uncompensated Worker.” For years, he has studied the income of injured workers and the adequacy of workers’ compensation benefits. He told me, “Studies have shown that many people with work-related injuries and illnesses don’t receive any workers’ comp benefits. I don’t think that the problem is too little research. It’s political. Unfortunately, workers are invisible in the political process, and businesses threatening to leave the state are not.”

I am not sure how the politics of this issue can change until the strongest research centers in the industry begin to pay attention to the worker.

This article first appeared at workcompcentral.com.

life insurance

Selling Life Insurance to Digital Consumers

When we started PolicyGenius, an independent digital insurance broker, last summer, we braced ourselves for a high-speed education on the finer points of the consumer insurance market–and boy did we get it. We previously consulted for the industry, but even that doesn’t prepare you for all the work that happens on the ground, like filing for licenses on a state-by-state basis, or spending a holiday manually preparing and sending out illustrations because of a last-minute surge in quote requests. (Or dealing with fax machines.)

But learning all the nuances, even the bewildering ones, has been an amazing experience. It’s exciting to be involved in an industry right at the start of its transformation into the next phase of doing business.

We hung out our digital shingle in July 2014, and thanks to our smart shopping and decision-making tools, as well as some extremely positive exposure from the national media, we’ve enjoyed 30% month-over-month growth in our user base.

In the process, we’ve had 12 months to learn a lot about the modern digital insurance customer. Here are six takeaways that agents and carriers can benefit from.

1. Babies are still the No. 1 trigger for buying life insurance–which means there’s still plenty of opportunity to educate consumers about other equally important life events.

It’s no surprise that having a baby motivates a person to buy life insurance. Our own data shows that among customers who take our Insurance Checkup (our online insurance advice tool), the number of those who already have life insurance jumps by 20% if the customer has a child.

In a survey we commissioned last year, we found that consumers place insurance fourth in line behind saving for retirement, paying off debt and following a budget. Life insurance should be a key part of any long-term financial strategy, but a lot of people still don’t realize that. The survey also suggests people don’t recognize the financial challenges that accompany other big life events like marrying, buying a home, starting a business or becoming a caretaker for aging parents.

Our takeaway: Buying life insurance for your baby is a given. Now we need to focus on bringing these other invisible triggers to our customers’ attention.

2. Couples do it together.

A State Farm survey a few years ago found that 74% of people rarely talk about life insurance, in part because it’s an uncomfortable subject to bring up with one’s spouse. But we’ve repeatedly seen one half of a couple begin a life insurance application with us, and then shortly thereafter we get an application for the other half. In fact, around 20% of our life insurance applications have a partner application associated with them.

Our takeaway: Once an applicant sees how easy we’ve made it to shop for a policy, she decides to take care of her partner’s policy while she’s at it. It saves time, and it prevents couples from having to talk about the subject too much or revisit it again any time in the near future.

3. Digital insurance consumers are thoughtful shoppers who appreciate honest advice.

Our average customer spends 9 1/2 minutes exploring her PolicyGenius Insurance Checkup report. According to Adobe’s Best of the Best Benchmark report from 2013, the average time spent on a site in the financial services category is just more than six minutes!

Our takeaway: If you give the customer intuitive educational tools and advice tailored to her financial needs, and you don’t ask for anything intrusive in return (like a phone number), she’ll become more engaged.

We’ve seen this later in the shopping cycle, too, when customers look into the reputations of prospective insurance companies. But more on that below.

4. Digital insurance consumers are happy to do most of the work on their own.

If you’ve been a part of the insurance industry long enough, you’ve probably heard the saying, “Insurance is not bought; it’s sold.” In other words, industry veterans believe that you have to sell (and often pressure) consumers, who wouldn’t otherwise purchase on their own.

We founded our company on the theory that this isn’t true, and now we know that there are people out there who independently come to the conclusion that they need life insurance. We’ve found that customers who come to our site want to go all the way through the application process on their own, with no agent intervention. They self-navigate through decisions about coverage and carrier selection on our site, using the jargon-free content and tools we’ve built to make the path easy. It may not be as easy and fast as buying a pair of shoes from Zappos, but we’ve worked hard to make the process reliable and trustworthy.

But not every self-serve life insurance experience is smooth, which is why it’s important to have human help when needed. One client told us in a follow-up thank you that it was “comforting to have someone on my side in evaluating different insurance carriers and working to get me approved when the first insurer turned me down.”

Our takeaway: If you make insurance easy to shop for, you don’t have to focus so much on the hard sell.

5. Digital insurance consumers are not just Millennials.

Everyone likes to talk about the Millennial consumer these days, but we’ve discovered that the digital insurance consumer isn’t defined by any one generation. It’s true that Millennials (< 35) make up about 50% of our user base; however, Baby Boomers (50+) make up 20% of our user base, and Generation X (35-50)–who spend more online than Boomers do, according to a recent BI Intelligence study–fill out the rest.

Our takeaway: To reach such a wide range of online consumers, we have to focus on values that have universal consumer appeal–honesty, speed and self-service that’s backed by amazing customer support.

6. Insurer financial strength and reputation are important.

When you’re shopping online, you’re used to seeing reviews and ratings. It’s one of the ways online consumers compare products or services that they can’t see face to face.

Customers frequently ask us for insurance company ratings and customer reviews. And they ask for help choosing a carrier when all the ones they’re considering have approximately the same rating, or if customer reviews are inconclusive. We’ve been asked, “Who is the largest insurer or has been around the longest? I don’t want anyone that will go out of business.”

They take financial strength ratings, brand strength and reviews seriously, and factor them in when deciding which policy to buy. It’s so important that we’ve added one-page “report cards” into our life insurance quoting process to help answer these questions.

Our takeaway: Insurance companies don’t have to worry about digital platforms like ours commoditizing their policies and encouraging consumers to shop only on price. While price is important, it’s not the only factor that consumers consider when buying a life insurance policy.

As an industry, we still have a lot to learn about selling insurance to the digital consumer. And as an online broker, we’re still learning valuable customer insights from fellow brokers and agents throughout the industry. It’s true that everything we’ve learned in the past year has helped us confirm many of our initial propositions, but it’s also helped us better understand how to win over today’s insurance shopper. We can’t wait to see what the next 12 months brings.

Will Rubio’s Measure Undermine ACA?

Republicans stated goal is to “repeal and replace” the Patient Protection and Affordable Care Act. That hasn’t happened and won’t at least through the remainder of President Barack Obama’s term. So a secondary line of attack is to undermine the ACA. And Sen. Marco Rubio has had success in that regard.

As reported by The Hill, Sen. Rubio accomplished this feat by weakening the ACA’s risk corridors program. Whether this is a long- or short-term victory is being determined in Washington now. We’ll know the answer by Dec. 11.

President Obama and Congress recognized that, given the massive changes to the market imposed by the ACA, health plans would have difficulty accurately setting premiums. Without some protection against under-pricing risk, carriers’ inclinations would be to price conservatively. The result would be higher than necessary premiums.

To ease the transition to the new world of healthcare reform, the ACA included three major market stabilization programs. One of them, the risk corridors program, as described by the Kaiser Family Foundation, “limits losses and gains beyond an allowable range.” Carriers experiencing claims less than 97% of a targeted amount pay into a fund; health plans with claims greater than 103% of that target receive funds.

The risk corridor began in 2014 and expires in 2016. As drafted, if payments into the fund by profitable insurers were insufficient to cover what was owed unprofitable carriers the Department of Health and Human Services could draw from other accounts to make up the difference.

Sen. Rubio doesn’t like risk corridors. He considers them “taxpayer-funded bailouts of insurance companies at the Obama administration’s sole discretion.” In 2014, he managed to insert a policy rider into a critical budget bill preventing HHS from transferring money from other accounts into the risk corridors program.

The impact of this rider has been profound.

In October, HHS announced a major problem with the risk corridors program: Insurers had submitted $2.87 billion in risk corridor claims for 2014, but the fund had taken in only $362 million. As a result, payments for 2014 losses would amount to just 12.6 cents on the dollar.

This risk corridor shortage is a major reason so many of the health co-ops established under the ACA have failed and may be a factor in United Health Group’s decision to consider withdrawing from the law’s health insurance exchanges. (United Health was not owed any reimbursement from the fund but likely would feel more confident if the subsidies were available).

The Obama administration certainly sees this situation as undermining the Affordable Care Act. In announcing the shortage, HHS promised to make carriers whole by, if possible, paying 2014 subsidies out of payments received in 2015 and 2016. However, the ability to do so is “subject to the availability of appropriations.” Which means Congress must cooperate.

That brings us back to Sen. Rubio’s policy rider. It needs to be part of the budget measure Congress must pass by Dec. 11 to avoid a government shutdown. If the policy rider is not included in that legislation, HHS is free to transfer money into the risk corridor program fund from other sources.

Sen. Rubio and other Republicans are pushing hard to ensure HHS can’t rescue the risk corridors program, claiming to have already saved the public $2.5 billion from a “crony capitalist bailout program.” Democrats and some insurers, seeing what’s occurred as promises broken, are working just as hard to have the rider removed.

By Dec. 11, we’ll know whether the ACA is further undermined or bolstered.

small deliverables

Mitigating Risk With Small Deliverables

For far too long, products have failed to make it to market. Or, if they finally do, they are over budget and grossly unpopular because of poor implementation of product development principles. Product development as a discipline has exploded with the ascendancy of the tech industry, because of the emphasis on innovation and product releases. This has created a paradigm shift in how risk is mitigated relative to bringing new products to market.

Of all the variables involved in getting a successful product to market, batch size is of paramount importance. The emphasis on small deliverables is the key to mitigating risk in modern product development.

What Is Batch Size?

According to Eric Ries, author of The Lean Startup, “Batch size is the unit at which work-products move between stages in a development process.” An example of a batch in the context of a software project is the set of code written in the development phase to implement a single, complete new feature of a product.

There are three key advantages to delivering features in small batch sizes: a decrease in development time decrease, an increase in feedback and a drop in cost.

Development Time Is Decreased

The ability to reduce the time from development to launch is not only a competitive advantage, but is also a risk mitigator. The ability to deliver a unit of work to your users quickly is a key benefit of delivering in small batch sizes. It is far better to have your new feature in your user’s hand sooner rather than later so you can test the assumptions that are the basis for future iterations.

Reduced development time also reduces the risk of obsolescence. In the past, I worked with a company to develop a technology that was first to market in its product category. The problem was that the product was delivered in large batch sizes. By the time the product was ready for market, the underlying technology had moved to another medium. Had the product been delivered in small increments, it would have been possible to integrate technology consistent with the pace of the industry.

The Feedback Loop Is Increased

Delivering on iterations of your product in small batch sizes increases the frequency of feedback from your user base, so you can be sure your product development is consistent with the expectations of your customers.

If you deliver a large batch of features to your user base, there is a likelihood that one or more features will be ill-received. This means the other delivered features were predicated on a false assumption. Engineers will make assumptions all through the construction process based on the most current information. This situation adds an inordinate amount of risk to a rollout that could have been mitigated with correct assumptions established from the outset.

Cost Is Decreased

When development of a software feature is finished, there are still activities that need to occur before a feature goes live. These include code testing, project meetings and process reviews. It is a common misconception by project managers that transaction costs associated with development cycles are fixed. In fact, these activities exponentially grow as the batch size grows and as a result are extremely costly. For example, troubleshooting a bug in code that relates to one feature is relatively straightforward. Troubleshooting a bug where code affects several related features is exponentially more complex and time-consuming.

Large batches increase risk in product development by causing schedule slippage, which in turn costs money. According to analysis by Donald Reinertsen, project schedules slip exponentially as time to delivery drifts. See figure 1 below:

fig 1

Figure 1

In conclusion, small deliverables reduce risks associated with product development. A major advantage of reduced batch size is that the time in development decreases. This allows your deliverable to get into your user’s hands more rapidly and creates a feedback loop. Smaller batches ensure your project stays on budget and increases the likelihood of your ultimate goal of getting to market.