Many veteran agents recall a time that was much more career-oriented, when they were recruited, trained and supported more. As that changed to a more independent system, they feel that something got lost in translation. LIMRA has noted a rising interest in career distribution, something New York Life has never abandoned. Why the renewed interest?
A lot of people are trying to figure out why there is record low life insurance ownership, why the number of agents is down, and whether or not this is a good career. To me, it's pretty obvious why there is less insurance being sold, less ownership and less agents. Companies just went away from career systems as a business model in the 1990s. Back in 1985, when I started, everybody looked the same. We were all mutual life insurance companies with career agency distribution systems. Met, Equitable, Prudential, Northwest Mutual, Mass Mutual, Guardian, New York Life…everybody was exactly the same. In the mid-1990s, New York Life made the decision that we were not going to do two things: we were not going to demutualize, and we were not going to go away from our career distribution system.
One thing I see as an advantage for New York Life is that we are a managerial system and not a general agency. The difference being in a general agency, the manager or general agent owns the agency. That means that they have decisions for how much they pay out agents, what they charge in rent, how they grow their operation. So you're the general agent, and Jane Doe comes along and is an experienced agent for another producer and you want to recruit her, you can pay her as much as you can within the constraints of the law. Now, if John Doe comes along and he is a rookie, you can pay Jane more because she brings in more dollars and cents. In a managerial system, our managers have their footprint on the agency, but the relationship with New York Life. Every agent we hire has the exact same contract. The manager is not responsible for things like rent, support, etc.
I'll give you a very real example. Right now, the next level of support that we are looking at developing is a pilot called Marketing Development Consultant. We're doing it in 17 offices. We are bringing in a full-time person without responsibility for recruiting or sales. Their responsibility is helping agents and the general office with individual and collective marketing on the local level. I think it will work, but I don't know. Now, if I made the conference call today with all 120 managing partners and said, "Hey guys, we got the funding, we got the bodies, we're going to put one in every general office just like a full-time trainer," you'd hear the yells of support across the country.
Now, it's very likely that a group of general agents would say, "Whoa, time out, who's paying for this person? I don't have the office space. What office do I put them in?" That's your job as the general agent, and a lot of them would say, "That's not what I want for my office. That's not important for my business model." I'm not saying one is better than the other, but the managerial model works for us right now. It allows us to support our agents in a very consistent fashion across the country.
When I speak to agents, the notion that one of the things that prompted companies to go away from the career system was that it was too costly to maintain, and that retention was not where it needed to be. Has New York Life figured out a way around those problems? Or are those problems universal and New York Life figures they are worth enduring because of the results they bring in?
It's a little bit of both. To begin with, it comes back to the stock vs. mutual approach. Career systems are an expensive form of distribution. We have big costs up front to be able to bring people through to be successful. Over the last five years, we have been getting incremental improvement in those numbers, but it is still an expensive proposition from Day One. If you are a stock company, I'm not sure you can wait that out.
For example, we support six cultural markets—Asian-Indian, Chinese, African American, Korean, Vietnamese and three years ago, we wanted to get more heavily involved in the Hispanic market. Look at the demographics in the U.S. and how we position ourselves as a middle market company; everybody says the Hispanic community is going to be the middle market down the road, and so we said to our Board of Directors that we wanted to invest in that. That meant developing support materials in the community, some advertising and building materials in language. The payoff here is a five-year payoff, because we are essentially saying that we intend to grow with people we have not even met yet. We don't even know who they are. But what we said to the Board is that this is a skill set for us, we know we're good at it, and we're going to apply it directly to the Hispanic population. But we're going to spend some money to do it and five years from now, you'll see growth and results in terms of earnings and profitability. As a mutual company, that's totally within our philosophy. As a stock company, I'm not sure you'd make that play. You'd say, "For five years, we're going to pay all of this out in order to get results?" But our Board supported it because it was the right thing to do, it's within our business model, we have a track record of success and the infrastructure is already there to make it happen.
Could you talk about the payoff New York Life is seeing from this career approach, especially over the last five to ten years?
Let's go back to 2006. We can look up where we were in terms of market share, but we were probably #1, #2 or #3 in 2006. And our market share was probably in the 6% range. For my whole career, it's been that way. Five companies share 25% to 30% of the market share and they move around and they separate out and sometimes, somebody is #1.
At the end of 2010, the way LIMRA measures market share, and according to our records, we set a company and industry record by exceeding 10% market share. At the end of first quarter 2011, our life market share broke our own record and we were up at 12.1%. Two years ago, for the first time we broke a billion dollars in life premium by year end, coming out of the career agency operation. Last year, we broke that billion-dollar mark by September. This year, we went over a billion dollars right after the first half of the year. It was our best first half of the year ever in life premium, recurring premium, investment annuities, our GLI product and long-term care. Every product line from our agents is up and performing well. What's at the heart of that is an unprecedented five and a half run of above-plan results in terms of growing manpower every year. For the 15 years prior to that, manpower would be up and down…we would just kind of hover around. But the last five and a half years, our manpower growth of agents has been a consistent rise. We think 2011 will be a record year.
Some of that, I'm sure is the economy. Some is employment. But a lot of it has to do with the job our managers are doing in terms of how they're recruiting, transitioning people and how we're preparing people to come into the business.
When the financial crisis hit in early 2009, we figured we would break records in recruiting, but that could kill our retention if we did not handle it properly. So we did two things.
One, we sent a global message that you need to hold people longer on their transitional contracts to see that they are committed to the business, and that they are the right person. Two, if your particular office had been challenged from a retention standpoint, then we told them what they needed to do before they could flip people to full time. They may not have liked it, but we needed to do it to protect the front gate.
The end result of that is in 2008 or 2009, the average commissions of the people we hired that year in their first month of business was $1,200. Today, the average commission in the first month of business is up over $3,600. On top of that, I've seen you handle rejection, phone calls, you have some success on sales, you've got a little bit of cash in escrow, and we'll pay your training allowance on top of that. We've got people walking into their first month of business where they're over $10,000. But on average they're at $4,000-$5,000 of taxable income. They can pay their bills and they have shown us they can do it. The last three classes that we have recruited have been our best classes ever, in terms of overall production, despite the fact that we're in a down economy.
© Touchpoint Markets, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.