The brave new world of life insurance distribution

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.