GAMA President Challenges Industry
To Stop Rampant Replacement
Saying the life insurance industry is facing a crisis of its own making and needs to make changes if it is to survive, the 2003-4 president of GAMA International called on companies to stop paying new commissions on replacement business.
Speaking at the annual LAMP meeting sponsored by GAMA International, Michael R. White also said the industry must stop offering enhanced financing dollars to recruit agents away from their existing companies.
The crisis facing the business, said White, who is president of Virginia Asset Management, Richmond, Va., is caused by the practices of some in the industry of moving large books of business from company to company in hope of achieving short-term success but at the expense of long-term growth.
As for markets, White said too many insurance companies are looking to acquire business rather than build it. They are re-engineering products rather than innovating, he says.
Companies, White said, are trying to attract each others books of business, a practice that is destructive over the long term.
“If the industry is to thrive, it must position itself to develop new hall of famers,” White says. “We cant continue to tear each others agencies apart in a short-sighted attempt to grow our own businesses.”
To survive and succeed, life insurance professionals must have a calling, he said, but there has been a meltdown in support of new professionals entering the business.
“This is a clarion call,” he says. “We must take control of the industrys future.”
The statistics, White says, reflect the current state of the industry. The average age of the life insurance industry financial advisor is now 51, he said, compared with 35 in 1980.
Agent retention is now down to 11%, White added, compared to 20% in 1980.
These, he said, are not the demographics of a dynamic industry. The industry, White said, is facing its own demise and struggling for survival.
“What have we been doing in the past 25 years?” White asked. “What has happened to our commitment to developing new people?”
Rather than focusing on building relationships, White said, the industry has resorted to a type of “cannibalism.” Rather than developing new markets, he said, premium dollars simply are being shuffled from company to company.
Moreover, he said, some of the policies are being changed even though it is not in the best interest of the policyholder. This is bad for the client and the industry and devastating to the agency system.
The hidden issue here is replacement, White said, and it eventually could invite government intervention. The industry, he said, must self-regulate to stop the government from interceding to protect the consumer.
White cited 3 reasons for the current state of affairs. First, he said, fewer resources are being invested in training and building people. Second, there are fewer and fewer long-term relationships. And third, the industry is not creating new markets.
White said that recruiting and training new people is the only way professional organizations can grow. He noted that the National Association of Insurance and Financial Advisors has seen a 50% drop in membership in the last several years.
“A healthy, growing NAIFA is important to the success of the industry and the agency system,” he said. “We must help NAIFA grow its membership.”
Reproduced from National Underwriter Life & Health/Financial Services Edition, March 25, 2004. Copyright 2004 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.