While life insurance sales, measured by premium, increased 8% last year over 2006 levels, in the life brokerage segment sales rose over 12%, according to LIMRA International, Windsor, Conn.
So, any company looking for growth should enter and expand into the brokerage marketplace, right? Nothing could be further from the truth. It’s extremely difficult to do this, as companies learn every day.
Case in point: One small company decided a while back that it wanted to go into the brokerage market. “If we build it, they will come,” boasted the leaders. To “wow” producers into selling, or at least looking at, its products, the insurer decided it would focus on unique product features. After all, the insurer had already achieved a number of product firsts in its geographic region–first with a universal life policy with no-lapse guarantee, first with a true no-lapse guarantee on variable life, etc.
“This will be paradise for the brokers, and sales will soar,” enthused the leadership. But it didn’t work out that way. What was the problem? The insurer ignored the 3 keys of insurer success in the brokerage marketplace. Here are those keys:
Company sustainability. Ask, is the company going to be a flash in the pan with its product offering?
A few years back, one insurance company had by far the lowest universal life no-lapse guarantee premium. Producers flocked to the company with business, but a few months later the business wasn’t getting processed and a dramatic repricing occurred. In effect, the company had grabbed market share and then pulled back.
Another company in mid-2006 stopped accepting any new business while it retooled processes and its UL product.
In both examples, the companies experienced dramatic declines in business. To this day, they are still trying to recover from a sustainability issue.
So, then, what to make of news that an insurance company which has been successful in the brokerage arena with one product line (say term) wants to expand into another product line (say, survivorship universal life)? The street-smart observer should first ask the sustainability question: Is the company ready with advanced sales design and support, or will it just offer competitive pricing for a short period?
Distribution integrity. There are really 2 facets to consider regarding distribution. These are internal and external integrity.
From an internal perspective, if an insurer takes a shotgun approach to distribution with direct contracting, company regional and/or brokerage general agency or marketing organization models, this may be a recipe for failure. It will put each distribution center in competition with one another.
Example: Even though a brokerage general agent may hold a contract with this company, if he senses competition from the local regional providing the same product, why compete against the regional? This question would be especially critical if he sees no difference in compensation or value proposition.
From an external integrity perspective, here are a few problems to look for.
One is companies that are willing to give top contracts to anyone or to “aggregate” production to provide agencies with higher compensation. Many insurers are now closely scrutinizing the whole aggregation model. After all, is the writing company better off if a brokerage general agency’s sales are up 10%, but only because it folded in more agencies rather than growing organically?
Another problem is the use of published payout rates and “special deals” negotiated on a national level about which the company’s regional offices aren’t even aware. That effectively puts the regional sales officers at a competitive disadvantage. Brokerage agency compensation shouldn’t be based on negotiating power but on defined metrics and true partnership potential.
Process. The important question here is, how easy is it to do business with the company? For example, does the carrier have a seemingly endless application? Is its technology an afterthought? Does it take 3 months to get something out of underwriting? Is there any relationship between the producer/brokerage/marketing organization and the home office?
For certain companies, the relationship is so deep with some brokerage general agencies that there are dedicated and exclusive teams processing the business. They focus on constant improvement to get the business on the books and get the broker paid in a timely manner. In addition, some corporate resources, such as a company’s marketing team, provide such tremendous support that the resources seem completely dedicated.
The above are competitive advantages that separate the successful brokerage companies from the brokerage wannabes.
Michael S. Pinkans, CFA, CFP, CLU, ChFC is the products and markets director for Brokerage Resources of America, based in Barre, Vt., and a registered representative and investment adviser representative for ING Financial Partners, Inc.. Reach him at MPinkans@bramco.org