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.