Simplification Redux

There is an ouch in here somewhereto the point that some regulators are examining the infrastructure behind the guarantees, and some heads in the business are starting to re-think their approaches. Can this be simplified without losing the market impact?

Oh, does that question ever have a familiar ring to it.

During the 1990s, National Underwriter carried countless articles on how the product profusion of the day was making things pretty complex out there for consumers and advisors. One year, we also ran a monthly section on simplification ideas for annuity, life, disability, health, long term care and other lines. In the latter half of the 1990s, some regulators even pulled the plug on approvals for the then very new equity index annuities; the reasons cited included complexity (of course).

It is not clear that things have gotten a whole lot better. However, the decade did produce a crop of new insurance education, certification and designation programs. And some products, like VAs and LTC policies, did achieve standardization as they moved into a more mature phase of their life cycles. For a while, simplification talk seemed to fade away.

But now, here it is again, the talk about needing simplification. Only this time, the wraparound issues are transparency, full disclosure and compliance, not risk-shifting.

It is tantalizing to think that some product tweaks here, education there and disclosure reform over there would take care of things. Who knows, maybe they will. However, the lessons learned from the past should be kept in mind.

First, old-fashioned simple products are gone forever, subsumed in the forward thrust of technology, process control and medical underwriting advances as well as in the starburst of diversity demographics. One-size-fits-all just doesnt work anymore.

Second, the best hope is to simplify the learning curve, presentation, systems and support on whatever products are at hand. In a free-market system, differentiation of designi.e., complexitywill not go away.

Finally, providing education helps, but ensuring that this education produces results helps even more. Where simplification is concerned, look for signs that newly educated staffers are using what they have learned to bring things into focus for customersto help them see. What good is all that education if staff is not applying it in the interests of the firm and its clients?

Bottom line: Simplification will come more from the processes a firm uses than the products it sells. Thats where the competitive advantage will be for financial professionals and their providers.

Reproduced from National Underwriter Edition, December 3, 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.