To The Editor:
Re: Steve Piontek’s Editor’s Edge, “Don’t Hold Your Breath,” April 17.
Few, if any, notable accomplishments arise without great effort. Such may be the case with enactment of optional federal charter legislation. Let’s hope not.
OFC legislation introduced by Sens. John Sununu, R-N.H., and Tim Johnson, D-S.D., is a necessity. It represents the best approach to addressing the many regulatory problems that not only beset the industry but affect consumer access to our financial products. A legislative quagmire is not in the interest of companies, producers or consumers.
President and CEO
American Council of Life Insurers
To The Editor:
Linda Koco’s insightful column of April 3 (“The Insurance Manufacturing Enigma”) prompts me to add my two cents’ worth. The notion that insurance companies are “product manufacturers” represents a fundamental lack of knowledge of: 1) what insurance is; 2) what it is to be used for; and 3) the vital role of trained agents/advisors. The result is the commoditization of the “product” and an increasing vulnerability of its favored tax status.
Insurance is not a product. It is a means of participating in a pool to share risk. The policy is simply the conditions under which the insured participates in the pool and what are the obligations of both parties. It is a unilateral contract that can take on different forms, terms and conditions, but it is not a manufactured product.
Insurance is to be used to protect individuals and businesses from financial loss in the event of certain events. In the case of life insurance these losses traditionally have been those caused by death, disability and old age. It is not a product manufactured for the purpose of financial gain or profit on the part of the insured or owner.
The agent/advisor’s essential role is not as a distributor–a product salesperson–but as an educator and motivator whose job it is to help people decide on what terms they should participate in the risk pool and at what price. And to encourage them to join the pool–now before it’s too late!
Looking at an insurance company as a manufacturer implies a finite source of raw materials. But the only raw materials needed are people facing possible financial loss in the event certain things happen and enough money to pool their resources with others to protect themselves against loss. The supply of this resource is endless. The insurance company holds and manages the pool for a fee. Obviously it is in the best interest of all participants in the pool that their total number be as large as possible so the law of large numbers will apply most effectively. Hence company sales and marketing departments–a good and necessary thing for all. The question of whether a company is a mutual or stock is irrelevant in understanding its fundamental role.
Finally, the “manufacturing” idea presents fertile ground for tax-hungry legislators. Viewing life insurance as a manufactured product clouds the issue of why it should receive any tax advantages. Viewed as a way to share risk makes any question of taxation of insurance benefits seem ridiculous.
Linda Koco has opened up a legitimate subject for discussion. In my opinion, we should collectively cease use of the term “product manufacturing” and call insurance what it is–insurance.
David F. Woods, CLU, ChFC, LUTCF
National Association of Insurance and Financial Advisors
To The Editor:
Linda Koco’s April 3 column struck a sensitive chord with me as she outlined the separation and shift of manufacturing and distribution in the insurance industry. Having been, in the past, on the company field training and development side of the world for over 10 years, I experienced firsthand the impact this division of work, costs and revenue has forced.
The captive distribution side of the house, especially those who have gone public, has had to scrutinize its operating costs and overhead from leases through to agency mergers. The “mega agency” is now more the rule than the exception in many non-GA companies. “Economy of scale” is the catch phrase, and, in some instances, captive managers look and behave more and more like GAs, accountable for the P/L of the local firm. This is a good thing.
And with that shift, new ways of leadership and supervision have evolved. Managers now must be “head coaches” rather than defense or offense specialists. They must be better delegators and more visionary. They must build infrastructures that rely on a network of coaches and mentors, rather than small unit managed groups. This leverage does reduce operating expenses and does force the evolution (read adaptation) from traditional management to effective leadership. Also a good thing.
Ms. Koco was right when she wrote that many firms “have cut back or stopped altogether the training of field forces.” This goes for leadership development as well as for sales practitioner training. While she alluded to “third-party professional education/designation programs,” she could have been more specific relative to the important role that the industry’s trade associations play in picking up the slack and, in many ways, providing vastly superior, best practices-based professional development for field leaders and sales practitioners alike.
Consider the professional and practice development component offerings of NAIFA, AHIA, AALU, NAILBA, MDRT and the American College–superlative designation and certificate tracks for sales practitioner development. Consider what LIMRA, the American College and GAMA International have to offer for leadership development. All of these organizations synthesize the best practices of their constituencies and offer professional development resources and relationship networking. Others, like LIMRA and GAMA International, offer high impact research that enhances the depth of understanding and skill application. Notwithstanding the tremendous governmental advocacy work of NAIFA, AHIA, AALU, NAILBA, ACLI and others, professional development is a core competency of each of these high profile, highly effective organizations.
Yes, field leaders and sales practitioners do have to work a little harder and put more skin in the game to achieve high levels of professional, competitive readiness. However, at the same time, more and more companies are leveraging industry associations’ intellectual capital to add a broader industry perspective to their own professional development and skill building offerings. Why wouldn’t a company want to leverage proven, high impact practices, processes and solutions to its proprietary training system?
Once training was an entitlement; now it is a scarce resource. In fact, whether provided through a pure manufacturer, broker-dealer wholesaler or a captive company, if offered well, it is a competitive advantage when it comes to recruiting and retaining both leadership and sales practitioner top talent. In any event, taking full advantage of the professional development resources offered through the industry trade associations makes good business sense for the individual and for the companies that want to compete at the highest levels. It puts “economy of scale” on a completely different plane.