The 7 biggest risks facing the Alliance and its member societies
November 1, 2012The Alliance Board of Directors meets on November 9 to review and approve the organization’s Strategic Plan and Budget for the coming year. The Alliance Board relies on a variety of sources in the planning process: member society responses to the organization’s annual Membership Satisfaction Survey; insight and opinions from Board members; reports from experts in the fields of life insurance and annuities, asset management, governance, politics, and community service/volunteerism; and the staff’s Enterprise Risk Management report assessing the risks facing the Alliance and its member societies. I thought you’d like to review the key elements of the ERM report so that you have a better understanding of the issues the Board will address in the 2013 Strategic Plan and Budget. As depressing as the following information may be, you have to keep in mind that this is a risk assessment and that the only way to effectively prepare for these risks – and take advantage of the opportunities they may create – is to objectively and realistically acknowledge their existence. I’ll provide an overview of the key elements of that Plan in a posting the week of November 12, and we will cover it in even greater detail in the Board Bulletin that will be sent to members a few weeks after the November 9 Board meeting. In the interim, please feel free to weigh in on the issues addressed in the following report – do you think we got them right? Is there something we missed? Post your comments here BEFORE the November 9 Board meeting so we can ensure that Board members have a chance to review them. Major Potential Risks Confronting the Alliance and Its Member Societies 1) Multiple societies assess members to avoid regulatory intervention and/or insolvency. • Potential Impact:
- Reputational damage to individual societies and the fraternal system within the industry (especially agents) and among public policymakers, consumers, and opinion leaders in the media will require both a “crisis communication” response and a longer-term public affairs campaign to restore faith in the business model and the regulation governing it.
- Significant regulatory backlash likely to result in efforts to require fraternals to participate in state guaranty associations (or more fully disclose their lack of participation in such funds), meet minimum solvency standards, etc.
- Inability to manage business operations may result in closer scrutiny of ongoing value and validity of business model and tax exempt status by state and federal public policymakers.
- Significant financial resources may be needed to fund efforts to defeat federal legislation that would undermine the fraternal tax exemption.
- Significant financial resources may be needed to fund legal challenge to any federal law that repeals all or part of the fraternal exemption.
- Repeal of federal exemption may spur some societies to become mutual insurers.
- Significant financial resources may be needed to fund efforts to defeat state legislation that would undermine the fraternal tax exemption.
- Loss of exempt status in one state could trigger “domino effect,” resulting in other states repealing exemption and potential repeal of federal exemption.
- Significant financial resources may be needed to fund legal challenge to any state law that repeals all or part of the fraternal exemption.
- Possible cuts in staff or membership benefits.
- Rapid draining of long-term surplus to fund operations.
- Inability to attract younger consumers will result in further reductions to membership of many societies and reduced impact of community service activities.
- Misperceptions of fraternals among independent agent community will reduce our ability to attract new members.
- Lack of awareness among public policymakers could result greater threat to fraternal tax exemption.
- Opportunities to create a new fraternal likely to be missed without greater awareness of among leaders of groups with common bonds that may be interested in a society start-up.
- Slow erosion of societies’ membership ultimately resulting in the need for the organization to merge or exit the insurance business.
- Extreme measures taken by societies to grow business, possibly resulting in rapid depletion of surplus and potential regulatory backlash against all fraternals.
- Greater chance of member societies or their independent field force not complying with stricter regulations related to solvency, annuity suitability, unclaimed property, or other issues, resulting in regulatory backlash against all fraternals.