A Disintermediation Storm Is Brewing For Life Brokerage MGAs
Theres a storm coming in the life brokerage distribution channel that could wipe out every General Agent and Managing General Agent. Perceptive MGAs can hear it in the distance. As Ross Perot used to ask when he was running for President, “Can you hear that great wooshing sound?”
That sound is the buzz inside many savvy life insurers as they build their direct sales capabilities and their “concierge” level of service for their top independent life producers and financial planners.
Theres also a buzz from their efforts to build world-class wholesaling capabilities to work directly with banks, wirehouses, broker/dealers, and large property/casualty organizations.
Theres a buzz from their beefed-up marketing departments as they study and segment end-customers and their life-cycle needs.
And, finally, theres also a buzz as these forward-looking life insurers build their capabilities to work directly with financial planners and advisors.
Future-looking life insurers are hiring consultants, revamping, and hiring key talent for their marketing departments to solidify their positions in the future. They know they have to be customer-focused. They know they have to provide real value to key producers in a fashion that will help these local entrepreneurs continue to grow their businesses profitably.
These life insurers are becoming better at multi-channel management. And, they know they have to provide these value-added services profitably in an environment of intense competition from both traditional and non-traditional competitors.
The ominous buzz that some perceptive MGAs hear is the sound of the emerging capabilities and initial successes of these life companies. And, this buzz is the precursor to a severe storm that will blow away any GA or MGA that doesnt add real and perceived value to a core group of segmented broker or institutional clients.
Additionally, to make things more difficult, this real value has to be added in an environment of lower margins, fewer soft dollars, and increased value given to large national distributors at the expense of regional and local firms.
And, like a tropical hurricane, this storm can quickly destroy any wholesaling and brokerage business that is not both a low-cost operation and an organization that either brings new clients or warm leads to its brokers; that does not help life producers grow and manage their businesses in cost effective and sustainable ways; that does not increase the sales productivity of life producers; that does not help life producers create a strong local franchise; and that does not help them service their end clients in a seamless way that can lead to repeat sales, more focused in-force marketing, and also strengthen their relationships with their clients.
In short, golf outings, lunches, reward trips, high initial commissions, forms, illustrations, and product information are no longer enough. These have become “table stakes”–necessary to be in the game but not enough to win when the storm starts to intensify.
Perceptive MGAs and brokerage aggregator organizations are starting to take action. They have begun the necessary and often painful “behind the scenes” work of integrating and rationalizing the “back office” function in the life brokerage business. This is made difficult by the plethora of incompatible systems that non-scale technology vendors are offering and by the lack of cooperation among life insurers in the areas of applications, new business standards, and forms.
But this important first step will only improve the efficiency of back office operations. However, customers (i.e., the broker or institution) dont care about all the work that went into your back office: they expect a seamless new business process and to get paid fairly and quickly. They dont–nor should they–care about how much it costs you to process their business.
But they care deeply about the future of their business. What they need are:
–More good clients;
–Easy sales to qualified people who want to buy insurance;
–Tools to help them market effectively within their niche;
–Software to create financial plans and perform due diligence;
–Back-up technical and legal help when required by the complexity of the case;
–Strong internal and external wholesaling sales support and point-of-sale assistance;
–Local alliance management support;
–National coverage when needed;
–Help in managing all aspects of their business.
And, to complicate matters, each broker and institution will require a different and an evolving mix of these services. Each broker will have a slightly different market segment that needs developing. And, this mix of services must be “tiered” according to current and future profitability of that brokers “account.”
And, to add another dimension, the service mix will have to be flexible depending on the need at the moment: a top tier broker may only need minimal service on a particular case. Sometimes the top tier broker may need a quick transaction and other times need a full frontal assault of support. A winning MGA will be so close to its customers that it knows when to switch from one sales and support model to another.
Few MGAs and aggregator organizations today have the capabilities to compete against the coming “insurer storm.” The few survivors will find ways to add distinctive value to an important group of brokers and/or institutions in a manner that will earn more than it costs.
My advice is to stay very close to your customers, spend time with them and find out what they want and need. Talk to them, survey them, get regular feedback, try new pilot programs and refine them according to the feedback you get, and keep pushing to be the most important external factor in their success.
The disintermediation storm is coming. The buzz can already be heard by the perceptive and the successful.
is a former McKinsey consultant and strategic planner who now helps life insurers and life brokerage organizations design distribution strategies and overcome their implementation challenges. He can be reached via e-mail at firstname.lastname@example.org
Reproduced from National Underwriter Life & Health/Financial Services Edition, May 6, 2002. Copyright 2002 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.