Consumer Demands Will Dictate Distribution Strategies

The evolution of the life insurance industry has been going on for well over 20 years, and will continue into the foreseeable future. As many companies have converted from a mutual to a stock business structure, the balance of power has shifted away from the mutual companies.

The old mutual company theory–that consumers are better served when a company does not have to divide allegiance between customers and shareholders–has been disproved. Now to survive, well-run mutual companies have dumped the old “fat and happy” business model, replacing it with rigorous management, comparable to that in a public company.

One area where companies of both types will continue to look for more efficiency is in the area of distribution. While I believe some companies will continue to distribute through a career channel, the trend toward separating distribution from manufacturing will continue, making even proprietary career distribution appear independent.

True independent distribution–direct brokerage, brokerage General Agents, Personal Producing General Agents and producer groups–will continue to grow, reducing a companys need for brick-and-mortar fixed costs. As companies slug it out for market share, they must operate more efficiently to compete and still be profitable. One critical way to do that will be to treat the field as their customers and partners.

What will this mean to the consumer? Todays consumers will decide how and from whom they will buy insurance. Companies will need to identify their markets clearly and design products and select distribution strategies relevant to the selected market.

Producers, as the link between the manufacturer and consumer, will align themselves with carriers and agencies that offer products and services consistent with their clients needs. In todays world, we in the field must accept the reality that consumers will want differing levels of professional advice when they buy financial products. As we build our practices, our value propositions must be consistent with what our clients want from us.

In this article, I will discuss my views on the future of distribution–how it will be consumer-driven and the insurance companys role in serving its customer, the field.

What Consumers Demand

The Internet provides todays consumer more access to information than ever before. This is a mixed blessing, because the information available is not necessarily quality information. But for a product where the consumer perceives that personal interaction adds no value to the buying experience, that product can be bought online.

This may work well with commodity-type financial products where price is the only consideration. A whole generation of insurance agents has taught the consumer to buy cheap term presented on a spreadsheet. These agents and the “paper-mill” agencies that service them are likely to become extinct in a short time because consumers will figure out that the intermediary adds little or no value to the transaction.

The consumer who makes the decision to engage the services of a financial professional will require the buying experience to be enlightening and interactive. There will be core elements that this upscale consumer will demand.

A Client-Focused, Solutions-Driven Process

Many times a casual acquaintance has asked me about my preferences–term or whole life, universal or variable–but the simple fact is what I prefer doesnt matter.

Consumers who choose to work with a financial professional expect us to be their advocate. We must focus on them, their concerns and their goals. We must learn their likes and dislikes and their experiences–both good and bad–with life insurance and investments. We understand that if a persons death will cause financial impact on a family or a business, then life insurance is a tool that needs to be considered.

But the client must understand and accept that concept and examine life insurance as an option compared to other financial alternatives. Until the client reaches this point, product type and specific carrier are totally irrelevant.

In order to help clients achieve their goals, a producer will need to be conversant in a broad range of planning areas, but willing to team up with specialists in other disciplines.

Company Neutral and Product Neutral

Putting the clients interest first is fundamental to ethical behavior in business. This becomes an interesting issue for a career agent with a company that still owns both manufacturing and distribution. How can agents be impartial when their business card has the logo and name of “their” company? This is not to say that career agents cannot be impartial, but they will be subject to a higher level of scrutiny to impress the client of their neutrality.

If a producer is truly client-focused and is truly company-neutral, is it possible for the right answer to always be provided by the same company? The career agent needs to have an answer. There are many good reasons to have a primary carrier, but the consumer must always believe that the agents first loyalty is to him, not an insurance company.

The same goes for product type. Whether it is term or permanent, fixed or variable, the producer needs to be able to offer wisdom and advice on any product type and must be properly educated and licensed to do so. The consumer doesnt care that you prefer fixed-UL to variable, hes interested in what best fits him.

Producer Requirements

To meet the demands of his clients, there are certain non-negotiable elements that a producer must be able to deliver to survive in the market.

A variety of product types. A wise person once told me, “You cant select from a group of one.” A client wants options presented. If the producer offers intelligent alternate solutions to a clients problems, the client is empowered to make a good decision. Often the most important step to achieving credibility with a client is to acknowledge the obvious. “You have many options available to you, including doing nothing”

Aside from doing nothing, there are many possible product types and configurations. A producers menu needs to include good variety. This includes affiliating with a broker/dealer that is willing to have a range of variable life choices on the shelf.

A variety of carriers to meet consumer needs. Companies must often “pick the spots” where they choose to be competitive. The spot picked might be market-driven based on their target audience–for example a niche in clients over age 70. It might be picked based on an expertise in certain areas of medical underwriting. A company might design a product for the corporate market, because its distribution is strong in that area. Irrespective of what the carrier’s top executives and marketers say, no single carrier is good (let alone best) in all areas.

The issue of variety of companies might, at first blush, seem like a problem for career agents. But many career companies today have brokerage resources for their agents. However, if the company doesnt compensate agents for these brokered products on par with their proprietary products, or if the service is second-rate, the producer will likely showcase “his companys” product.

While the carrier might find this acceptable, the consumer may not. The potential price is the producer losing credibility in the eyes of the client. The risk taken yields negligible returns at best. No credibility = no sale.

An affiliation that enhances the selling and buying experience. There is no question the independent producers who were once lone wolves now crave affiliation. Whether it takes them back into the career agency system, to a producer group, or to a favorite brokerage agency, they will look for services that take the friction out of the sale.

Offering a broad variety of products has a price. Just keeping software updated, can be a daunting task, let alone keeping up with competitive data between carriers. This is where a value-added affiliation can fill a need. If the producer is particularly resourceful, he can find an organization that actually makes the process of obtaining life insurance a pleasant experience for both producer and consumer. The selection of the right affiliation can actually enhance a producers relationships with clients and their financial advisors.

The rules to the game have changed. Consumers willing to blindly accept financial solutions from a single-company are virtually extinct. Todays more worldly, more enlightened consumer will demand an advisor whose mind is not clouded by bias regarding the right company or product style.

Companies that dont recognize the producers need for independence and producers who dont acknowledge the clients absolute requirement of impartiality will not make it into the game, let alone the starting lineup.

Steven R. Craig, CLU, ChFC, MSFS is chief marketing officer of Second Opinion Insurance services, a boutique brokerage agency in Woodland Hills, CA. He can be reached at steve@secondopin.com.


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.