Why Is The Value Of Wholesalers Obvious To All But The Home Office?

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It might seem like cataloging the obvious, but most observers have long maintained that field and internal wholesalers are the guts and the heart of the life insurance business.

In spite of the on-again, off-again support from their home offices and strategy du jour directions from on top, these folks have created real value by bringing sales to their firms and are the front line of the changes in how life insurance is sold.

They are also in the forefront of the chaos arising from the necessary introduction of multiple distribution channel management selling models. The rapid and copycat product development skills of life insurers have made it almost impossible to compete on long-term product advantages alone. And, the failure of the direct models to be economically viable have made the value of the wholesaling function even more obvious. Obvious to all, it seems, except to many home offices and life insurance CEOs.

When I was a consultant for McKinsey and Company, our finance people and actuaries crunched numbers, ripped apart the life insurance business system and studied where the value drivers were in the life insurance business. To nobodys great surprise, distribution accounted for more than 80% of the value created or lost in the life insurance business system. Its where the action is and its where the battles are won and lost.

Or, to put it in management consultantese, distribution is the spot in the business model that has the greatest economic and market leverage.

Yet, when I speak with independent wholesalers or wholesalers of life insurers or insurance home office execs, it still boggles my mind how under-resourced and under-appreciated field and internal wholesalers are.

Few home offices can adequately measure the value created by their wholesaling salesforce and few understand which investments are vital in this channel and which are wasted. Its looked upon as a necessary evil and as kind of a black hole where money gets poured in one end and somehow sales come out the other.

There is no industry association for internal and external wholesalers. There are no industry designations, awards, sales training programs, personal development programs or career ladders. Budgets are being cut for unstrategic reasons, territories are constantly being redefined, and new–and less generous–compensation systems are being implemented with almost no input from the wholesaler field force.

Very few people truly know what a good wholesaler does and, other than the groundbreaking research by Russ Prince, few know how a wholesaler adds value to clients and how that value has been changing over the past few years. (See chart.)

Two recent experiences brought home this problem in very vivid terms to me. I recently had lunch in the executive dining room of a life insurance home office. This was one of several executive dining rooms and, I believe, the most opulent. The menu was French, the wine was expensive and the corporate chefs came out personally to describe our choices for lunch. There were more men in white coats than you see in an insane asylum.

Over Pinot Noir and the asparagus appetizer, the CEO and his executive team wanted to discuss the usual topic: “How can we cut our distribution costs while increasing our revenue?”

During the discussion I asked the group if they had ever been into the field and the answer, was, of course, they had. They have an annual sales meeting and the group was recently taken “into the field” by a large consulting firm. They described this event as if they had gone to Africa on one of those “safe” safaris: They saw the animals, but from a safe distance.

I asked the group if they could describe for me the purpose of their wholesaling salesforce. The answers I received would be typical of almost all life insurance execs:

“They travel around their territories making sure our customers have the right information about the advantages of our products at the right time to influence the purchase,” and

“Our wholesalers show our customers the benefits and value of our products and how they are superior to the competition.”

As most wholesalers will tell you, this “showing and telling” is about 5% of their job and one that actually should be handled by other channels, like the Internet. The “explanation of product superiorities” no longer adds value and works, but thats what their bosses think they do all day.

If they spent time in the field with the good, value-added wholesalers they would discover that the other 95% of a top wholesalers time is devoted to helping their producers and producing groups with sales ideas, market niche intelligence, business development, sales-cycle analysis, practice management, equity-building ideas and exit-planning strategies.

They would also find the wholesalers involved with agent and agency coaching, putting on sales seminars, helping to open and close sales jointly with producers, and generally doing everything within their power to make the producer successful in his or her business.

The other telling experience I had was at a recent industry conference. Tons of home office folks, company wholesalers, independent wholesalers, aggregator execs, consultants and top producers were there. There were lots of good programs and brief, professional conversations during the day.

At night, however, the home office folks went back to their hotel rooms to sleep. The consultants went back to their rooms to read. The aggregator execs went back to their rooms to hide.

But the wholesalers and the top producers went back to their rooms to make phone calls, serve customers and plan the next day. Then they went out to talk, discuss and work on ways to build their business together. They were full of life and making things happen.

Theres no easy answer to this huge disconnect, failure to communicate, and general lack of understanding, but to get a discussion going, I offer a few ideas.

1) Find ways to incorporate real wholesaler input in the planning process.

2) Study the actions of the best wholesalers and begin to understand their sales cycle and the ways they create value for their customers in the selling process.

3) Create a structure where home office execs, field wholesalers and producers can work together to find ways to create value for end customers in the selling process.

With product superiority/differentiation being so hard to maintain and with the reevaluation of the economics of direct models, home offices, wholesalers and producers must find ways to create value for consumers in the selling process. Its no longer about communicating product features and benefits. Competitive advantage will often reside not in what you sell, but in how you sell it. The wholesaling function will become The Franchise.

Once again, to put it in management consultanese: There has to be a more effective and efficient way to go to market, and there has to be a better way to manage the distribution value chain. And, the most economic and market leverage can be found in the field and internal wholesale salesforces of life insurers and the independent wholesale salesforces of IMOs, MGAs and BGAs.

helps improve the distribution value chain for life insurance firms to increase sales and productivity. He is a former McKinsey consultant, life insurance salesperson and an executive at an aggregator firm. He can be reached at mjmckenna@earthlink.net.


Reproduced from National Underwriter Life & Health/Financial Services Edition, September 30, 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.