CNO Financial: DOL Rule to Cost $8-$10M in 2017

By Cyril Tuohy

CNO Financial Group plans to spend between $8 million and $10 million in 2017 to comply with the Department of Labor fiduciary rule.

In addition to initial implementation costs, the company will spend between $2 million and $3 million a year to comply with the rule, said Gary Bhojwani, president of CNO Financial Group, a Carmel, Ind.-based holding company for middle market life insurers.

The rule, which raises investment advice standards for retirement accounts, is expected to cost the industry hundreds of millions of dollars as companies restructure product lines, adjust compensation grids and adapt technology systems.

Ameriprise Financial reported last month that it had spent $7 million in the third quarter alone in connection with the DOL rule, bringing its total spending this year in connection with the rule to an estimated $19 million, according to news reports.

CNO Financial distributes life and supplemental health insurance products through the Bankers Life, Washington National and Colonial Penn brands. CNO Financial also sells through 40/86 Advisors, a fixed-income investment advisor.

Even with spending estimates of as much as $10 million next year and up to $3 million a year thereafter related to the DOL rule, executives said the rule will have no “material adverse impact” on any of CNO Financial’s companies.

Bankers Life, which distributes products through the career agency channel, intends to use the DOL’s Best Interest Contract Exemption, which allows agents and advisors to sell commission-based products, Bhojwani said.

“Transaction-based compensation will continue to be paid for covered products and additional compensation impacts are currently under review,” he added.

The DOL rule is expected to have little to no effect on Washington National, a marketer of supplemental health and life insurance through independent agents, or Colonial Penn, which sells simplified issue life insurance through direct sales generated through television advertising.

The DOL rule is scheduled to go into effect in April with full implementation Jan. 1, 2018.

At Colonial Penn, new sales were lower this quarter due to the company’s decision to trim TV ad spending during a presidential election year when ad rates rise, company executives said.

Agent Retention an Issue at Bankers Life

The number of newly recruited agents to Bankers Life rose by 15 percent in the third quarter compared to the year-ago period. However, the quarterly average producing agent count dipped 5 percent to 4,436 agents compared to the year-ago period, CNO Financial reported.

The drop was due to a decline in the number of “in-bound leads” considered vital to helping new agents build their books of business, company executives said.

“What we did not anticipate and what we’re not pleased with was the retention of the first-year agents,” Bhojwani said.

Agents leave for a variety of reasons, but a common thread among departing agents is that they don’t generate enough income during the first year. Income generated by new agents is correlated to the quantity and quality of the leads they receive.

The company will address the issue in the coming months. “We are going to get it sorted out,” Bhojwani said.

At Washington National, new agent recruiting rose 4 percent in the third quarter compared to the year-ago period, the company said. The average producing agent count rose 7 percent to 953 agents compared to the year-ago period due to new agent recruiting and higher retention.

CNO Earnings Top Wall Street Estimates

CNO Financial reported third-quarter profit of $18.6 million. On a per-share basis, the company registered a profit of 11 cents. Earnings, adjusted for nonrecurring costs, came to 37 cents per share.

The results exceeded the expectations of Wall Street analysts. The average estimate of three analysts surveyed by Zacks Investment Research was for earnings of 35 cents per share.

Third-quarter revenue was $1.02 billion, the company reported.

InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].

Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at [email protected].