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