And, the Distribution Winners Are
Captive insurance agents, long the key distribution channel for most traditional life insurance policies, now account for less than half the premiums paid, a new study by Conning Inc., the Hartford, Conn. research firm, reveals.
The big winners in the distribution sweepstakes are independent producers, and their control over life distribution likely will continue to grow enormously in the years ahead, Conning concludes in a new report, “Life Distribution Goes Independent: Succeeding in the Post-GLBA Environment.”
The title refers to the state of the insurance industry after passage in 1999 of the Gramm-Leach-Bliley Financial Modernization Act, which made it easier for banks and other financial firms to get into the business.
Many captive agents, Conning notes, find themselves competing not only with independents and banks but also with financial planners, lawyers, CPAs and other professional advisors.
A life distribution survey recently completed by Conning found that production by captive agents declined to 21.5% in 2000 from 29% of new premiums in 1997.
[This figure is well below the 49% share reported by LIMRA two years ago for captive agents, a difference due partly to differences in the mix of companies in the two surveys, Conning says.]
Conning found that 42.7% of new premiums in 2000 came from independents, up from 36.8% in 1997.
It notes that many captive agents terminate their relationship with their primary insurers to become independent agents or representatives of banks or other financial firms.
The study also notes that insurers are scrambling to sell their products through agreements with banks–entities that only a few years ago they saw as competitors.
Although banks have so far captured only about 2% of new life premiums, they also appear to have the greatest potential of any channel for growth, the report suggests.
“Banks have preferred access to a customer base that can be segmented easily, based on readily available financial information . . . and they also have the financial resources and intellectual capacity to develop that potential,” the study observes.
The 21 insurance companies participating in Connings survey expect bank-produced premiums to grow from 0.9% of total life premiums in 2000 to 1.2% in 2003. While still small as a percentage of the industrys total sales, in absolute terms that means a growth from $31 million to $54 million of those insurers products over that period of time.
Although they may be moving away from captive roles to other channels, individual producers will remain important in distribution, Conning says. They have been teaming up not only with independent agencies and banks, but also with broker/dealers, independent marketing organizations and producer groups.
“If you had told me a decade ago that traditional life insurers would be wooing the wire houses and banks as principal distribution channels, I would have said you’re crazy,” says George McKeon, assistant vice president at Conning and author of the study.
To succeed amidst the growing competition, McKeon says agents need to break out of the traditional role of selling products.
“The agents should learn they are selling advice, and protection is almost secondary,” he says. “The product becomes a tool to implement a solution that the producer has crafted.”
Todays consumers are often averse to dealing with agents tied to one carrier, adds McKeon. They think someone who understands their concerns should be in a position to select from a variety of solutions from different insurers.
For their part, insurers can respond to the trend by developing products and services that fit the need of independent agents as well as bankers, financial planners, broker/dealers, CPAs, attorneys and other advisors who want to fill their clients needs for insurance products.
Already, carriers are offering these advisors products that fit consumers demand for investment products with reduced loads as commissions.
“You might say that in life insurance, manufacturing is finally listening to sales, rather than the other way around,” McKeon says.
Connings study also found that the broker/dealer channel has continued to grow substantially. Broker/dealers accounted for 8.5% of new premiums in 2000, up from 5.7% three years earlier, Conning found. In most cases, these premiums involve the sale of variable life products.
Meantime, McKeon says, the Internet has not provided much competition to agents.
“In spite of the millions of dollars spent on developing the Internet as a distribution channel, actual sales have been elusive, largely because the age-old wisdom that life insurance is sold, not bought continues to be proven true,” he concludes.
Reproduced from National Underwriter Life & Health/Financial Services Edition, November 12, 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.