Internet Tools Can Lower Costs And Increase Competition

The most powerful, and maybe the only, incentive appreciated by commissioned sales people is cash, i.e., higher commission. Since online service and support has zero marginal cost whereas traditional support has a positive marginal cost, which approach to favor is a simple business decision–assuming the carriers/distributors have online capabilities, which many do.

To expect producers to change their historical habits in the absence of an incentive is not logical. Inertia is the path of least resistance for producers, even the cyber-savvy ones. There is little argument that using online support means lower cost and better profit performance for distributors/carriers, but part of the cost savings must be used for incentives to change traditional ways. How much incentive and how best to administer?

As is generally the case with such allocation problems, the “market” is the best arbiter. Most carriers use third parties to distribute or wholesale their products, and it is at this level where an efficient market solution can be found for this allocation problem. Distributors are better able to determine and manage their cost structure because of the scope of their operations, nearness to the sales process and hands-on management of their available resources.

By allowing this “more compensation for being cost effective” decision to be made at the lowest possible level, the outcome will be dictated by the market and therefore more efficiently in a competitive environment. To set the stage for this “market solution,” carriers should change their policy and allow distributors to share their “spread” to pay for the incentive that will foster the use of online resources.

Distributors simply give their producers a choice: For those capable of writing business without handholding and assistance, and willing to use the Internet to access the needed tools, a higher commission is paid because fewer support resources are used. Producers who are not proficient or inexperienced, and must have “traditional” support or are unwilling to utilize the Internet tools, are paid a lower commission.

One effective way for distributors to safeguard against abuse is to assign capable producers to a unique Internet-only affiliate that offers a richer compensation package. This entity will be the only point of contact for support and service needs, and if the producer reverts to “traditional” methods, the violation will be easily detected.

The Internet platform has been readily accepted by independent, experienced and self-reliant producers not needing, or using, the service and support they implicitly pay for at traditional distributors and home offices. The end result is more efficient distribution and a win-win outcome for both the distributor and producers.

While the Internet does not appear at this time to be the panacea for the sale of life insurance products, it does offer substantial potential for service and support for the distribution channels. While all carriers and distributors are supporting their producers with Internet resources, the lack of incentives to use these resources had led to underutilization.

It seems reasonable that monetary incentives will motivate many experienced producers to abandon traditional service and support sources for a more efficient Internet-based platform. The Internet has become an integral part of our everyday experiences, personal and professional, and it is time for the insurance industry to better utilize this innovative, dynamic tool by providing incentives to encourage its use.

Reproduced from National Underwriter Edition, April 14, 2003. Copyright 2003 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.