Product complexity has become a lightning rod for criticism by certain insurance and financial pundits.

Consumers, advisors, lawyers, regulators, legislators, courts and others have complained that insurance and annuity policies have become too confusing, have too many moving parts, feature too many options, have too much fine print, leave too many gaps in coverage, and so on.

I’ve said some of the same things right here in this column.

But product complexity is not the main thing that befuddles people who pine for simplicity and ease of doing business. The big culprit is something more amorphous–business complexity.

Business complexity refers to the huge and spaghetti-like infrastructure that births and undergirds insurance and financial products. It includes not just design, pricing and distribution but also marketing, technology, management, business relationships, reinsurance and a host of other systems and forces.

Complexity has become integral to the way the business is done.

Consider: During a recent interview, Francois Gadenne, chairman of the Retirement Income Industry Association and also president and chief executive officer of Retirement Engineering Inc., Boston, said one-product solutions will not work in a world where many people live 20 or more years in retirement.

Retirees need comprehensive and flexible approaches that incorporate multiple financial sectors and solutions, some of them delivered via all-new business models, he said.

In other words, retirement today is more varied and complex than for prior generations and the solutions need to wrap around that.

So too in financial sectors such as life insurance.

For example, several brokerage general agents recently told me that the life insurance business has changed dramatically from a quarter century ago, and even from just a few years ago. The products, business relationships, reinsurance requirements, underwriting rules, medical diagnoses and treatments, insurance regulations and laws, and target markets are all more specialized and, yes, more complex than ever.

Systems have arisen to smooth out some of the bumps, but it’s still a multi-layered, intricate world, they said.

Complexity has permeated how people get their financial information, too. It comes by way of e-mail, internet, intranet, cell phone, fax, and yes, print pubs and landline phones, too. Did you know that 1 in 10 online consumers now catch TV broadcasts via the internet, the large majority of this for news? That’s a finding from the October 2006 Consumer Internet Barometer, a 10,000-household survey by The Conference Board and research company TNS. Financial news is no doubt part and parcel of that.

Amid so much change and expansion, it should come as no surprise that industry observers get all in a huff about complexity. The desire for order and certainty is understandably strong.

It should also come as no surprise that many critics zero in on and harp only about product complexity. After all, they can easily see, read and react to product features and provisions they find to be confusing or complex. It’s much harder to do that with business complexity.

Bringing product complexity to heel is not a bad thing, of course. But it can go only so far.

For instance, some insurers periodically bring out one-size-fits-all designs to meet demand for simplicity. But often, those same insurers later roll out “enhanced” or “updated” versions touting flirtatious riders and options, or provisions for target markets or advanced sales. Mass market products just don’t work with all customers, these companies say. Besides, it’s hard to differentiate a business based on one-size-fits-all, and advisors can’t easily customize plans without options, liquidity, and flexibility.

Bringing business complexity to heel, however, might be the better way to go.

Ideas for doing this are already afoot. For instance, RIIA has been urging retirement firms to work “across silos” to develop suitable retirement income solutions for today’s consumers. And BGAs are urging agents who have hard-to-place life insurance cases to consult professionals who are experts in negotiating today’s very complicated specialty markets.

That’s not dousing business complexity. It’s harnessing it. That’s the way to go.