As the independent channel for life insurance product expands, market-watchers are questioning whether the channel’s main distributors–brokerage general agencies–will be able to continually replenish and grow their ranks with new producers. The concern is well founded because it’s not clear that the conventional source of recruits will be able to fulfill the need.
How We Got to This Point
Traditionally, many producers appointed by BGAs started in the business working for a large carrier like Northwestern Mutual, New York Life, MassMutual or MetLife. The insurers’ investment in these “career” or “captive” agents during the recruits’ early years is significant, often exceeding $200,000 in sales training, support and (in some cases) salary compensation of limited duration to supplement commissions.
Those agents who survive their first years in the business and elect to go independent–a minority of producers recruited by carriers, as the four-year agent retention rate remains in low teens–bring to interested BGAs a demonstrated ability to sell product and work for themselves.
But companies in the independent channel can no longer expect to appoint career agents in the large numbers that was possible in decades past. The reason: a downsizing of carriers’ direct sales forces. According to Limra International, Windsor, Conn., the number of life insurers that recruit new agents has declined to approximately 70 carriers in 2010 from more than 220 in 1985. Of the total, only about 10 carriers do 80% of the hiring.
The reduced number of insurers has yielded a 30%-plus drop over the same period in the number of carrier-trained agents. Today, the direct sales channel, including career agents, multi-line exclusive agents and home service agents, totals an estimated 172,000 producers according to Limra. That’s down from 249,000 in 1981.
Why did so many carriers shed their direct sales forces? As noted in the accompany article on recruiting, cost-containment was a key factor (particularly during the recession of 1990-1991, when the industry’s weaker players went bust or needed to restructure to remain solvent). By selling product through intermediaries, carriers can outsource much of their distribution costs, including expenditures connected with regulatory compliance, technology systems, marketing and, not least, agent training and support services.
Also fueling the shift to independent distribution was the growth of disciplines within the financial services sector–financial planning, wealth management, pension consulting and investment advisory services–whose professionals include life products in their portfolio mix. Many of these specialists built their careers outside the life insurance field; and, to a large degree, they view their independence of the carriers as essential to upholding their fiduciary responsibility to clients.
The Path Ahead
To expand their ranks, forward-looking BGAs are implementing training programs tailored to agents who come to the life profession without prior experience. Many of these companies, Limra researchers note, are small outfits that field no more than 50 producers. The better funded ones get an assist from independent market organizations and carriers that can budget resources to basic sales training.
Still, these efforts are fragmentary, varying widely from one company to the next. And so the question arises: Is a more collaborative effort required, one organized by trade associations in concert with the indirect channel’s players, to substantially enlarge the producer pool? Could, for example, the National Association of Independent Life Brokerage Agencies spearhead the development of an agent training program that the industry’s BGAs and IMOs would fund and carry out?
I put these questions to Mark Rosen, the 2010 chairman of NAILBA, Fairfax, Va., and president of Underwriters Brokerage Service, Pittsburgh, Pa. His response: Such a nationwide initiative is unrealistic. NAILBA, he says, is not set up for this purpose. And he questions whether enough of the industry’s players would participate in such an initiative to give it critical mass.
The more likely course of events, he and Limra experts say, is that BGAs will boost their ranks by recruiting more aggressively and creatively among the aforementioned professionals and others whose expertise is frequently required in advanced planning, including CPAs, estate planning attorneys and P&C agents. Because many of these advisors already have extensive sales and business management experience, the level of training and support required to get them up to speed on life products is qualitatively different from that needed by new career agents working for the carriers.
And so the channel of independent producers will comprise an increasingly eclectic mix of advisors who bring broad expertise and skills to the life insurance space. That’s all to the good, for in meeting their recruitment objectives, BGAs will also be enhancing an already outdated image of the life insurance professional.