The Art And Science Of Growing A Life Insurance Distribution Firm–Part II

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In Part I of this article (see NU, June 11, 2001), I outlined the conceptual framework of a growth planning process for life insurance agents and financial services entrepreneurs. In this part, we will go through the next steps in growing your revenue and I will also take you through a practical exercise to think about growing your businessnowand creating the conditions to sustain that growth for the next five years.

As Part I described, life insurance agents/brokers and financial services professionals, are faced daily with a topsy-turvy, frightening array of decisions regarding how to grow their business. These decisions are difficult given that consolidation in the life insurance business has made carriers stronger and smarter in multi-channel management techniques and better equipped to take value (i.e., money) from life insurance producers.

Non-traditional competitors like banks, lawyers, and CPAs have also taken value (i.e., reductions in compensation) and have created new demands for value-added help in the selling and new business process.

Changes in the estate tax laws are forcing all high-end agents and financial services professionals to re-examine their selling processtheir value proposition to clientsand to scramble for new ways to get revenue in the door. This article gives some tips on how to think about the best ways we can scramble more effectively.

In Part I, I highlighted the process of concurrently managing your business across the three time horizons in order to jump to the next “s” curve before business starts to decline and curve downwards. (See illustration 1.) In Horizon One our goal is to defend and “milk” our core business. In Horizon Two, we focus on building emerging businesses that will be our “cash cows” in about two years. In Horizon Three, we “place bets” on future businesses that will develop into Horizon Two and Horizon One businesses in three or four years and start the process over again.

The art and science of this process lies in balancing this tension while concurrently managing across the three time horizons.

How to beat the “s” curve

Once we have created and reinforced this simultaneous or concurrent “three horizon” mindset and vocabulary, we ask our firms that have the desire to enter into a growth planning process to begin with small but effective steps. We call this process “building your fire.” Without “fire,” or strong passion supported by courage and the right economics, even the best of us will succumb eventually to the “s” curve.

The process of building the fire has three major phases, one that requires the entrepreneur to look withinpreparing the base for your fire–and the other to look outsideexploring fuel sources for the fire. The third phase is a synthesis and the start of a strategic plan.

Phase One: Preparing the base for your fire

A strong base requires firm expense controls, a strong commitment from your key staff, and an even stronger commitment from you. First, every entrepreneur has to take a hard look at the operational aspects of their office to make sure they are a low-cost operator. That is, you really cant grow profitably unless your firm has superior operating performance, seamless operations, and expenses that are under control and in line with your current and emerging competitors. If your costs are out of line, you will have difficulty growing your business long term.

Second, you need to earn the commitment from your key staff, whoever serves as your “banker” (your aggregator or primary insurer), and whoever approves your growth plans. You have to build confidence in others.

Third, you should be very clear and honest with yourself about whether you want to enter into a growth phase and whether you have the energy and will to grow your business. It is okay to want to enter into an exit mode and not growjust be honest with yourself. If you are depressed, unsure, or in a rut, fix that before trying to grow.

Once you have looked within to make sure you are a low-cost operator and that you have secured the support of your staff and your “banker,” the next phase is a brainstorming session to explore all the dimensions of revenue and profit growth.

Phase Two: Exploring all fuel sources for the fire

This phase consists of three exercises to flex your mental and emotional muscles and to help you to see the totality of opportunities without constraints or prejudices.

We call the first exercise the “expansion/contraction” session. The goal of this exercise is to create an expansive mindset in which you can remove all constraints to growth and to focus on one specific, fundamental issue: Should you grow by expanding your business or should you limit your focus by contraction? (See illustration 2.) In other words, should you be a generalist or a specialist. It is almost impossible for a single entrepreneur to be both a generalist and a specialist.

This first fundamental decision is made easier if you have joined an aggregator, because you will have opportunities to cross-sell and to leverage network opportunities, thus allowing you to focus on a “contraction strategy” and to dominate a niche and cross-sell into the network or to draw on the expertise within your network to complete your competency gaps.

The second growth exercise is the “passion meter.” Everyone needs to gauge the strength or passion of his or her commitment for growth. That is, you have to decide, today, what excites you, what turns you on, what fills your life with meaning, or, to put it bluntly, what you want on your tombstone.

Passion and commitment are more than legitimate emotions in our business: these emotions are a fundamental part of the selling process. Just go to a Million Dollar Round Table meeting and youll understand that we are engaged in a business that touches basic, deep human emotions in both buyers and sellers. Not only is it okay to be passionate about the business, its a necessary pre-requisite for success; its part of the selling process.

If you dont feel strong emotions, you arent ready to begin a growth process. It is okay to want to develop an exit strategy, just be honest with yourself and dont begin a growth process if you want out.

The third exercise is called “the clock” and its purpose is to help systematically think about all of your growth options and to think without constraints or limitations from your current capability gaps and lack of resources. Because opportunities are fleeting, life insurance entrepreneurs should engage in this brainstorming at least once yearly to reevaluate growth paths and reprioritize options.

To visualize the clock exercise, we use the image of the hands of a clock during a typical business day (see illustration 3) to show the successive degrees of difficulty of each growth option. Each “hour” represents a growth path that is more difficult than the previous “hour.” A “day” represents an exhaustive set of growth options expressed in degree of “stretch” from your core business. And, although the “hours” are not mutually exclusive, only the largest firms can begin initiatives in every “hour.” Most individual entrepreneurs can do three or four at most.

Using the clock illustration, One oclock would be selling more existing products to existing customers through inforce marketing. This is the most fundamental growth strategy and, at first glance, the least costly. In the new estate tax environment, this first growth step could be implemented as easily as contacting all existing customers who have used the $600,000 estate tax limitation and selling them more insurance to increase the size of the estate they leave “tax free” to their children.

This step also includes term conversions, 1035 exchanges, and going back to clients to complete their financial plan or reviewing the pension plans of your group clients to insert more life insurance to take advantage of the new estate tax laws.

This could be the easiest of all growth options as long as you have kept good records and have adequate end-customer information capabilities to exploit all in force marketing opportunities.

The two oclock stage is finding new customers for the existing products and services you currently market. These new customers could be new ethnic or occupation niches, gender-specific markets, or religious or affinity niches. This step usually requires an increase in the advertising and marketing budget as well as an investment in time. It may not reap immediate rewards as it takes time to earn credibility in new market niches.

Three oclock is selling new products to both new and existing customers. This could be as simple as beginning to charge fees for planning that you are currently giving away for free to make the sale or approaching your existing life clients with disability insurance planning. But, the most obvious move would be a stretch of competency into new product areas, such as long-term care insurance, disability insurance, IRA maximization planning, off-shore products, or specializing in ESOPs and/or defined benefit pension plans.

Four oclock is experimenting with new channel and delivery approaches. In life insurance, we traditionally think of channels as either career, PPGA, broker or direct. Digging a little deeper reveals an almost endless array of possible delivery and channel options, many of which the industry does not adequately track because our reporting mechanisms were designed for career companies and state regulators and have failed to keep up with the fast-paced changes in delivery approaches in use today.

Banks, with their many departments, offer about a dozen channel approaches. Accounting firms, law firms, and individual financial planners are all quickly emerging delivery approaches or channels. National wirehouses and regional and independent broker dealers have all become “channels” for the distribution of life products, each having its own requirements and key success factors.

A new channel and delivery approach requires the development of new selling, marketing, and alliance skills. This new approach may even require the development and expert execution of multi-channel distribution management skills that most individual practitioners simply dont possess.

Five oclock is expanding into new geographies. These could be in the next region or state. They could even be global opportunities. Most life insurance agents have not benefited from the globalization in financial services nor have they fully exploited the geographical mobility of the international millionaire. These customers can purchase large life policies in the United States from U.S. life insurers.

The life industry has poor records on this business, but some insiders have estimated that almost a billion dollars of new life premium will be sold in this way in 2001, especially in advanced countries with low interest rates.

Six oclock is modifying the economics and the structure of your industry. This improvement could be through merger, acquisition, and/or alliances. The life industry has seen several attempts by individual producers to “join together” to increase bargaining power with carriers and to create some brand recognition in specific markets, such as executive benefits.

There are aggregator groups creating bargaining power and the possibility of equity realization for life insurance and financial planning practitioners. And, there are distribution organizations that are “vertically” integrating high-end wholesale and retail businesses to not only improve bargaining power but also to also improve access to products and operation efficiency and effectiveness.

Changing the economics of an industry requires scale and the creation of a distinctive collection of critical capabilities that even the aggregators, to date, have failed to build. But those who have temporarily experienced the joys of increased leverage know its a beautiful thing.

Seven oclock in our growth planning exercise is to break out and expand into all new industries and/or competencies. This step is more practical for large companies that have the luxury to develop new growth areas. It is easier for a life insurance carrier to enter into the real estate development business, loan origination business, or the credit card business than it is for an individual producer.

American Express can go from credit cards to financial planning much more easily than an individual practitioner can. An individual simply cant cut himself or herself into little pieces and still be effective. But, if this individual is part of a network of complementary competencies and if all economic incentives are aligned, there could be a successful “step out” if the networking organization helped with initial capital, client identification, approach, opening, closing, and “back office” servicing.

Eight oclock, the final hour, is a review of the options in the seven other hours. It is the most difficult and probably the most neglected step. This “end-of-the-day” synthesis is a necessary step to turn the brainstorming list into specific, prioritized action steps. It is the beginning of a strategy.

Phase Three: Screening ideas

Once you have gotten to this point, you should pass the list of brainstorming ideas through three “screens.” (See illustration 4.)

The first screen is by practitioner “passion.” If an opportunity doesnt excite you, dont pursue it. This is a tough business; you need to be excited about it. The second screen is by economics or, in other words, profit margin, timing of revenue flow, and size of opportunity. That is, what is the potential revenue and net profit of each particular initiative that excites you? When will this new revenue start to flow?

The third screen is by organizational capability. That is, if you have found something that excites you and you have determined that you can create significant economic value from it, can you actually pull it off? Do you have the required competencies, assets and relationships to be successful with the particular opportunity that excites you? Is the gap too large?

Passing the large list of growth opportunities through the three screens will result in a short list of high priority items. Next, bring your short list back to your “three horizon” framework. After screening all the ideas, put the options into the “three horizons” grid in our growth planning process. Which growth initiative will lead to Horizon One profits in the next quarter, which initiatives are in the Horizon Two category of emerging opportunities and will bring in revenue within two quarters but which may not yet be profitable? And, which ones are Horizon Three and will not show revenue or profit for a few years but still need an investment in time and capital to position you for future growth?

The results from this process will be an even shorter list of growth initiatives divided by time horizon. This short list or road map can tell you what you should do tomorrow morning to profitably grow in the next quarter. It should tell you which initiatives will become your next growth “engine” in a year or so and which ones should be in your “incubator” to secure your future survival.

The Horizon One initiatives should immediately improve your bottom line. They are “doable” activities that can make you money today with little investment, minimum effort, and little organizational change. The Horizon Two initiatives should produce revenue and some excitement among your staff and your capital partner, but you might have to invest more than this new revenue into these initiatives in order to help them grow. That is, these initiatives may actually not add to your bottom line, but they will add to your top line. The Horizon Three initiatives are the hardest to manage for a sole entrepreneur since they require a “pure investment,” primarily of time, personal growth, and attention with no immediate prospects for revenue or profit.

A cursory glance at the economics, effort, and cost to concurrently manage the growth initiatives along the three horizons will lead most life insurance and financial service entrepreneurs to seek the guidance and resources of a larger organization that can deliver the economics of scale, scope, and cultural fit as well as consulting/planning help to take them through the process.

The special feature of this growth planning process is its potential to turn typical business and industry “s” curves into sustainable growth horizons for individual businesses.

My hope is that everyone of character and integrity that feels passion for the magic of life insurance will personally beat the law of the industry “s” curve and continue to prosper and find success and fulfillment for decades to come.

is vice president, strategic planning, for Highland Capital Holding Corporation. E-mail him at

mmckenna@ highland.com.


Reproduced from National Underwriter Life & Health/Financial Services Edition, October 8, 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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