My growth rate is what??? BY TODD CARLSON Executive Vice President and Chief Sales Officer Funeral Directors Life
One of the biggest mysteries in funeral service is knowing the growth rate being paid on your preneed funeral contracts. How do I know this? Almost weekly, I hear from someone on my sales management team about their conversation with a new potential funeral home client. These conversations go something like this: FDLIC Sales Manager: Funeral Home Owner: FDLIC Sales Manager: Funeral Home Owner: FDLIC Sales Manager: Funeral Home Owner: FDLIC Sales Manager: Funeral Home Owner:
Mr. Funeral Director, what is the growth rate you’re being paid on your preneed funeral contracts? I’m pretty sure it’s around three or four percent. Three or four percent? Are you sure? That’s pretty high given today’s interest rate environment. Yes. I’m pretty sure I’m right. How do you know this is correct? Um. What do you mean? ‘How do you know this is correct?’ I think that’s what growth rates were when I signed up. Plus, I like my rep and I trust her (or him). When did you last ask the company about your growth rate? I haven’t lately. They’d tell me if something changed, wouldn’t they?
You’d certainly think so. However, in my 24 years of preneed experience, not every company shares FDLIC’s and PFDA’s commitment to keep their clients informed of the actual growth rates credited to their prepaid funeral plans. Each time growth rates go up or down, FDLIC communicates the growth rate to each preneed insurance client in person and in writing. In the PFDA trust, PFDA keeps your growth rate front and center—so you know exactly where you stand. And that’s the way it should be. I’m not exaggerating when I write about funeral directors who think they’re earning three or four percent on their preneed plans, even though those kind of growth rates are ancient history.
It might not be your fault. Some preneed companies are less than forthcoming with their growth rate information, and they make it difficult for you to understand what they’re currently paying. As a responsible business owner, you need to know this important detail. Here’s what you can do about it. 1)
Call your preneed company to ask them. Ask about both new business being sold and in-force business on the books. Sometimes those are two different amounts. Ask about the specific product you sell. Don’t settle for an answer that gives you a “range” of growth rates. And don’t settle for an answer that says they pay “up to” a certain amount. Get the details.
Ask whether the growth rate is simple or compound. Compound growth pays growth on growth and is much more likely to keep up with inflation—which is compound in nature. Simple interest pays a set amount of growth each year. A set amount loses its purchasing power against inflation over time. It’s a subtle difference with not-so-subtle consequences – especially with plans that stay on the books for many years.
One of my sales managers recently had a prospective client call their provider’s home office and they were told, “We’re not sure what we’re paying you. Sorry. We’ve made many changes over the years, and it’s too confusing to keep track of.” This is not an acceptable answer. They are now an FDLIC client.
Do the math yourself. Here’s how: a. From your year-end in-force reports, calculate the difference between the 2017 and the 2016 death benefit. For example: $7,333 - $7,200 = $133. b. Divide the difference by the 2016 death benefit: $133 ÷ $7,200 = 0.0185. c. Convert the decimal to a percentage: 0.0185 x 100 = 1.85%
I’ve walked many funeral directors through this exercise and I’ve seen many surprised and confused faces quickly turn to angry ones. It’s unfortunate because it shouldn’t be this way. In my opinion, honorable businesses should keep their customers informed even when the news is not good.
Ask your preneed provider about product options. Preneed is not “one size fits all,” so inquire to see what the best fit is for you depending upon your business goals and preneed contract purchaser profile.
Don’t fall for “growth rate gimmicks.” Some preneed companies try to get you to think you’re earning more growth than you really are. A casket price guarantee program might fall into that category. How important is a casket price guarantee program in a growing cremation rate environment? How much are you giving up on your cremation growth rate in order to fund the casket program? Look carefully at the program’s rules and restrictions. And most importantly, ask yourself if you want to be locked into one supplier forever. In a dramatically shifting casket sales environment, keeping your options open might be your best option.
Inquire into your preneed company’s financial stability. Some preneed companies have been tempted to overpay on growth to keep market share. This is dangerous for you and your families. Select a preneed carrier with at least an A- “Excellent” A.M. Best rating. If your preneed carrier is unrated, get a copy of their annual report, or go to the National Association of Insurance Commissioners to download a free financial profile at https://eapps.naic.org/cis/.
Many funeral directors are shocked to learn their preneed carrier is losing money or not making much money. Insurance companies need to be profitable to maintain and grow their Capital and Surplus. If Capital and Surplus is not growing, then my experience says trouble is brewing. Consider yourself warned. Today’s funeral service environment is more complicated than ever. Families are changing. Competition from traditional and nontraditional sources is increasing. And profit margins are suffering. The margin of error in funeral home ownership is narrower than ever. I encourage you to be proactive with your business and demand accurate and timely answers from your preneed funding source. About the Author: Todd Carlson serves as the Executive Vice President of Sales and Chief Sales Officer for Funeral Directors Life and sits on the Board of Directors for Passare, Inc. Todd earned his Bachelor’s degree in Mortuary Science from the University of Minnesota, and has gone on to accumulate over 25+ years of experience as both a funeral director and a preneed funeral sales professional. Todd joined Funeral Directors Life in 2006 and helped reimagine the company’s sales management structure, contributing to sales growth of over 300% since he joined the company. Todd is dedicated to helping funeral home owners grow their businesses, implement innovative solutions, and become increasingly more relevant as they serve today’s changing funeral consumer. He has previously presented strategies for connecting with today’s consumers at the ICCFA, MN FDA, ND FDA, PFDA, and MO FDA conventions.