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The brave new world of life insurance distribution

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Life insurance is constantly evolving. We’ve gone from focusing on one wage earner as the primary breadwinner to focusing on two wage earners and trying to find the best way to help our customers supplement lost income. Today, we are finding new ways to help our clients be financially secure throughout their retirement.

As the overall industry has evolved, the way we sell protection and retirement products has begun to evolve as well. Recent research conducted by LIMRA and McKinsey & Company has found that many insurance and financial services organizations have begun to transform their approaches to distribution. The emergence of new and more refined distribution models carries the potential to provide highly motivated, well-supported advisors and agents with unprecedented opportunities to meet evolving consumer needs with smart, flexible solutions, while achieving their own bottom-line business goals.

One thing that has not changed is the need consumers have for solutions to very complex issues. Historically, the primary concern of the insurance-based advisor was helping clients address the issue of dying too soon. However, today’s consumers face the unprecedented challenge of “living too long” and outliving their retirement savings. These are truly complex issues and there is no “holy grail” solution. Advising clients about these problems requires face-to-face interaction, similar to the complex issues that consumers consult other professionals about, like attorneys or CPAs. Insurance-based solutions need to be the cornerstone of these plans.

The industry landscape

Let’s take a closer look at the current landscape of our industry. Many observers would agree that competitive forces, market demands and regulatory changes have created the need to deliver products in more effective ways while strategically managing costs. The prolonged low-interest-rate environment has put pressure on carriers, particularly in regard to the recently increased reserve requirements that apply for certain universal life products with secondary guarantees, as well as variable annuities with living benefits.

One way that carriers can strategically manage their balance sheets is to raise product rates; we’ve seen that happen. Another way is to cut back on distribution. We’ve seen carriers reduce distribution within both the career channel and the broker channel in an effort to limit sales of these capital-intensive products. And a third, and least popular method among advisors, is to cut commissions and benefit-eligible compensation. Committed carriers recognize that there are three parties in this relationship: the client, the advisor and the company, and all three have to be treated fairly for long-term success in the career advisor model.

As you may have noticed, another component of carrier strategy can be raising minimum production standards for distribution partners in order to align product sales volume with targeted profit goals. Further, a burgeoning carrier focus is centered on maximizing the productivity of career agents and advisor group partners to help give them the capacity for targeted sales, as opposed to simply providing more products to more producers.

The carrier role

What can this way of doing business mean for advisors and agents? Clearly, carriers must maintain a robust recruiting process to onboard and develop new distribution partners in order to sustain highly refined distribution models. It’s crucial to train and equip newer advisors to be top-level producers while simultaneously leveraging the expertise of more seasoned professionals. Given the age gain of the experienced advisor population, if carriers don’t have a recruitment model that starts to backfill, they may face declining distribution reach.

Think about carriers that have demonstrated a significant commitment to growing their career distribution channels and leveraging the full strength and diversity of their product portfolios. When production standards are increased, it’s critical for distributors to have access to a broad portfolio of product offerings, in order to give advisors more “arrows in the quiver.” They will need the ability to provide multiple client solutions and increase productivity. Yet in many situations we have seen the reverse — increasing standards and carrier retraction from core product offerings.

Committed advisors deserve to earn primary carrier credit for selling products from multiple sources, and they deserve a carrier partner who maintains a steadfast commitment to face-to-face distribution — one that realizes doing business in person can not only be a monumental asset, but the best way to serve the consumer.

As I reflect on what was transpiring in our industry several years ago, it seems there was a veritable product “arms race” — that every few months, one carrier or another was upping the ante with new products deemed to be even more competitive, regardless of how truly differentiating the product features were. Subsequently, some observers (including analysts on Wall Street) would likely point to these product sales as adding significant strain to carrier financials. However, in a quest for increasing market share, carriers were increasing capacity of these products. It is incumbent on carriers to price products reasonably, to provide real consumer value for the long term.

Certain carriers, however, held back from engaging extensively in the product and pricing wars, and as a result, seem better positioned now to market innovative new offerings that can help distribution partners attain production goals while fulfilling the evolving needs of customers. That matters immensely, as consumer needs remain staggering.

Despite years of outreach by our industry to consumers, life insurance ownership levels remain woefully low; only 44 percent of U.S. households have individual life insurance. Furthermore, as LIMRA’s Patrick T. Leary, assistant vice president, distribution research, wrote recently, “While there is significant opportunity in the retirement space, there also are challenges. Of the estimated 50 million pre-retirees today, many lack understanding of retirement risks, most find it difficult to communicate goals and concerns, and two-in-three clients who have advisors still fail to create a plan.”

With the knowledge that consumer needs are multiple and ongoing, advisors would be wise to consider products designed to serve as value-added solutions for a variety of changing needs. Certain accelerated benefit riders on guaranteed universal life insurance (GUL) can transform the product into coverage that can help to meet a variety of needs throughout an insured person’s life.

See also: 10 timely life insurance riders

Additionally, a new type of chronic illness accelerated rider that is available with certain GUL products can help to cover many types of expenses for policy holders who qualify for benefits and can help guard against inflation by means of how benefits are paid. Also, new, cutting-edge designs allow for acceleration of death benefits for purely retirement income needs. These innovative, state-of-the-art designs create potential solutions to both “dying too soon” and “living too long” problems, providing a backstop to retirement savings and helping to solve multiple client needs.

Both new and experienced advisors truly deserve to work with a carrier whose guiding principles reflect that the company has two customers: the client who writes the check, as well as the advisor who matches the consumer to that product to help meet his or her needs. Carriers that consider advisors the primary catalyst for growth can demonstrate their commitment by positioning them in the marketplace and providing them with the tools they need — including new, innovative product features, broker-dealer solutions that provide carrier credit, and state-of-the-art technology solutions. First and foremost, advisors and agents must be able to always meet the needs of their clients.

Technology and access to social media platforms will be critical to drive advisor productivity, giving advisors access to new markets for prospecting as well as creating efficiencies. Advisors need access to mobile technology solutions including iPads, iPhones and other “smart” devices. Are carriers providing those solutions for their agent advisors? Is the advisor able to leverage electronic applications through these devices to empower both advisor productivity and improve carrier “NIGO” (not in good order) rates?

The right resources

The most committed carriers are pushing resources closer to the local offices where highly motivated advisors are doing business. These carriers augment their infrastructure to effectively support these advisors with local support. Examples include home office training directors, local recruiting directors and local marketing directors.

Furthermore, at a time when the market seems to be calling for additional industry regulation, solo producers may find the evolving requirements challenging — and also carriers with a fortified local presence are well positioned to help them adapt, and enter into partnerships that are “win-win.” Carriers that create a more holistic distribution model have the potential to more comprehensively support regulation and compliance suitability, toward the goal of providing producers more time to do what they do best: serve clients.

In addition, access to products outside the primary carrier’s portfolio is critical. This allows advisors “objectivity.” Carriers that couple a robust primary product portfolio, with access to “outside products” that either are not offered by the primary carrier or are risks the primary carrier doesn’t want, offer a very compelling value proposition to advisors.

What carriers want

What does a carrier seek in an advisor or agent for its transformed distribution model? From my perspective, the ideal partner is one who is committed to clients with the highest standards of ethical behavior and customer support, one dedicated to customers not just through the sale of a product, but also, for a deeper purpose: to positively impact clients and their families at the most meaningful moments in their lives, protecting loved ones in the event of death or disability. Also, as any advisor who has delivered a death claim or liquidated a 529 plan to send a child to college knows, the impact of the advisor on people’s lives is far greater than the individual transaction, and lasts a lifetime.

Professions that can make a positive difference at all those times are rare indeed, but the career advisor is one of those noble callings. Therefore, carriers value distribution partners who view customers not as a transaction, but rather, as a relationship — an ongoing one for evolving needs throughout life. From strong, dedicated carriers, advisors have the potential to glean the solutions and resources to help clients with an array of needs.

Carriers who work with distributors to create a “do more, get more” culture, where all advisors are treated fairly but not equally, are building a strong foundation for success and advisor loyalty. Top producers, including those at the Million Dollar Round Table (MDRT) level and up, are an elite group, and as a carrier’s best customers, they merit a highly personalized, comprehensive level of support, and more access to the tools and resources that carriers can provide.

As statistics show, the average age of experienced advisors, particularly at the MDRT level, is rising and currently stands in the mid-50s. Even as companies today explore alternative distribution models, including big-box stores and Internet distribution, it is critical to commit to building a new cadre of advisors to supplement the current top-tier group — while leveraging the experience of this group. While each channel has the potential to be valuable, the face-to-face business model is still the method preferred by many consumers to solve complex issues. Carriers have an unabated responsibility to their clients, the career distribution force. Carriers must continue to support the face-to-face business model because it’s still the primary way to help consumers understand the value of life and retirement products.

The relationship between carrier, advisor and customer can be viewed as spokes in a wheel, where each spoke must be of equal length for the wheel to spin optimally — if the relationship shifts out of balance toward any of the three parties, it is no longer optimal. Maintaining this balance is the primary responsibility of carriers who are committed to the face-to-face, career model of distribution.

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