The annuity industry has experienced staggering growth in recent years.
We could generate $525 billion in sales this year, and more than $1 trillion per year in sales in a few years.
For those of us who have dedicated our careers to income planning, these numbers are thrilling and validating. After decades of hard work, annuities are finally receiving the respect they deserve.
Now, however artificial intelligence is casting a shadow over the industry’s future, particularly for independent agents. Independent agents could be marginalized, isolated and potentially rendered obsolete.
A Look Back
Sixty years ago, the general agency system dominated the life insurance and annuity industry.
General agents helped life insurers oversee product distribution. General agents played a critical role in recruiting, training, supporting and compensating agents, while also providing marketing resources.
Organizations like the General Agents and Managers Association were the industry leaders. They spread information, lobbied Congress and state legislatures, and served as the backbone for the independent insurance agent community.
However, as time passed, insurance companies began to reassess their need for an extensive general agency network. They tried to save money by working with outside insurance marketing organizations and field marketing organizations. In addition to cutting expenses, the shift to IMOs and FMOs helped insurers offload agent support responsibilities. Although this model increased efficiency, it diluted the general agency system's sales culture.
Relationship Selling
The general agency system promoted relationship selling.
General agents once taught their agents how to use a comprehensive "Fact Finder" questionnaire to uncover a client’s true financial needs, goals and concerns.
This approach fostered trust and led to natural referrals, creating a self-sustaining business model. Well-trained agents had strong relationships with their supervisors and companies, which translated into lasting relationships with their clients.
With the emergence of IMOs, however, the industry gravitated toward a transactional sales model. Maximizing commissions and sales transaction volume replaced relationships as the primary focus.
This shift gave rise to an entirely new sector: lead generation, or efforts by independent companies to use print ads, television ads and other means to locate people who might want to buy life insurance and annuities.
As the general agency system faded, new agents had no exposure to traditional relationship-driven sales techniques. Instead, they became reliant on purchasing leads, making calls, closing sales, when possible, and repeating the cycle.
The industry became driven by short-term transactions rather than long-term client relationships.
Today, many agents rush through introductions, eager to present product features without fully understanding whether a product is a suitable fit for the prospect.
The compensation model has overtaken the client-centric model, and as a result, agents using transactional selling now produce about 90% of all annuity sales.
AI
Now, it looks as if AI could diminish use of relationship selling further and promote AI-driven transactional selling. Insurers will use AI to explain, sell and service annuities, reducing the need for human agents.
AI-driven direct-to-consumer marketing will become an invasive force in the IMO world. Eventually, it will force agents out.
The question is when and how.
One sign that a shift is coming will be a drop in the annuity agent’s compensation.
Demand for annuities might be explosive, but AI and algorithms mimicking agents will fulfil the need. And. guess what? You don’t need to pay an algorithm!
If the need for human agents drops, compensation will drop.
The demand for a traditional agent-client relationship is already eroding.
Young people buy everything from groceries to sweaters using their smartphones. When they do buy life insurance or annuities from live humans, they want a streamlined digital experience.
The most alarming aspect of this transformation is that the agent role will not disappear. It will simply no longer require a human presence. AI-powered agents will do the work.
Who will be taking advantage of this new, AI-supported market? Obviously, large companies that already have DTC operations.
Where will the independent human agent be? Buying leads?
No. There will be no leads available: The DTC companies will absorb or bury the lead-generation companies.
A DTC company will use the leads its own lead-generation business finds itself. The company will make it so difficult for an independent organization to find and produce good leads that no independent agent will be able to afford to buy the leads.
This has already started to happen. Ten years ago, an annuity lead could be purchased for around $50. Now, the price has inched up to nearly $500 each.
What happened?
The answer is simple: Strong demand for leads from a transactional sales force.
The Future
What's the path forward for the agent? Is there one?
Yes: Visibility is the one advantage the agent has over an algorithm. Visibility is the opportunity.
Independent agents need to move quickly to reclaim the relationship selling model.
Independent agents must establish themselves as recognizable and trusted figures within their communities and professional networks. This means leveraging personal branding, thought leadership and educational outreach.
In-person seminars will be more important than ever, because they will give attendees a chance to meet the human speakers who want to be their human advisors.
The time to act is now. Visibility is no longer optional: It's is the key to survival in an industry on the brink of a transformation.
Bill Broich, co-owner of Annuity.com, also works as a content marketing strategist for financial professionals.
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