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The Illusion Of Alternate Distribution Systems

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Over the past several years I have read so many articles regarding the displacement of the agent or predictions of who will become formidable competition that it has reached the level of ad nauseam.

It is interesting to note that such articles are not being written by agents commenting on actual experience. Rather, the authors are usually just observers, many of them consultants helping companies make gigantic mistakes.

Most often mentioned as the new competitive force are bankers, the Internet, CPAs and lawyers. I do not know much about the Internet as an insurance marketing tool, so I am not qualified to comment on that. However, early reports that I have read, published by researchers, do not indicate the Internet has been much of a factor so far.

I suspect that like direct response selling by mail, it will appeal to some. However, direct response selling has never amounted to more than 2% of the market.

Insofar as bankers are concerned, I believe they have already discovered that to cover wide insurance markets, they will need a staff of agents. Since I have previously written on this subject, I will move on to the main focus of this article–CPAs and lawyers.

While both lawyers and CPAs have been mentioned as prospective major players in our marketplace, I believe it is safe to say that most people regard CPAs as the most formidable. A few companies have specifically targeted them for joint ventures, and some have encouraged their agents to form liaisons with accounting firms. A number have done so, and thus there is a body of knowledge and experience beginning to develop.

I have talked with people who have devoted much time and energy to creating working relationships with accounting firms, and so far the results have not been promising. I am sure there are examples somewhere in the country where this has not been true, but there are factors now becoming evident which mitigate against large-scale success.

I am told that there are several major reasons that interfere with the use of accounting firms in the marketing of insurance as well as other financial services. First of all, to a CPA marketing financial services, this will only be a part-time endeavor, or perhaps a sideline. Such professionals will not give up their identity as a CPA in the pursuit of ancillary business.

As I heard this, I could not help but wonder how many life underwriters in taking on sideline products lost their own unique identity in the process.

Perhaps the largest hurdle has been the reluctance of CPAs (and I am sure lawyers also) to abandon the concept of “billable hours.” Accountants and lawyers are simply not used to performing services for which they are not paid. Perhaps the one notable exception is the contingency fee accepted by lawyers for personal injury and liability cases. But then their fees, when collected, are usually sizable and not many lawyers will accept a case that looks like a loser.

But that is not the salespersons world. Not every person that walks into an auto dealers showroom and “kicks the tires” becomes a buyer. But they do occupy the time of some hopeful salesperson. Agents often spend enormous amounts of time prospecting, qualifying and fact-finding a potential buyer. This is often followed by extensive consultation and preparation of proposals, and none of their effort is compensated, unless the prospect ultimately buys from them. Reliance upon the uncertainties associated with commission income is contrary to the culture of accounting and legal professionals.

Then there is the commission itself. The commission structure of insurance and other financial services has evolved over a long period of time and such evolution did not contemplate the kind of sacrifices in income producers must make in order to make it attractive to work with other professionals.

The evolution of commissions has taken into account the degree of difficulty in making a sale, the nature of the product being sold and the continuing service requirements. Association with other professionals may minimize some of these factors–but they dont go away.

I suppose it is possible that large national or even regional accounting firms could set up separate divisions to market financial services somewhat like they have done with consultant services. It is worth noting, however, that when they become successful as consultants–as one of the largest of these, Andersen Consulting, did–it sued to become separate from its parent accounting firm, Arthur Andersen.

Such separate divisions might become broker/dealers or general agents for an insurance company, thereby increasing revenue. But even if this should come to pass, they would still hire agents to sell their products on a commission basis. Of one thing I am certain, the parent accounting firm is not likely to subsidize such an operation and it would have to pay its own way.

Finally, while this kind of operation may work on a large-scale basis, it wont do much for the five- and 10-person local firms who do most of the accounting work for our prospects.

For some time, I have felt that if companies quit looking for alternate distribution systems and instead spend the time and energy supporting their existing agency system, they would be money ahead and the public better served.

A look at the roster of the Million Dollar Round Table, I believe, reinforces that belief because invariably the numbers of agents from companies that support their field force always dominate.

Reproduced from National Underwriter Life & Health/Financial Services Edition, June 11, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.

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