Frank T. Gencarelli

There are over 740 defunct automobile companies in the history of the United States. Many of these date from the early 20th century. Most were bespoke hand-crafted models presented with pride to an emerging market.

Most went bankrupt due to lack of market acceptance or lack of capital. But over 250 can trace their demise to a failure to adopt a disruptive and innovative platform.

The assembly line.
Henry Ford (“If I asked people what they wanted, they would have said ‘faster horses'”) and his team revolutionized the manufacturing process by sending cars-in-progress down a path staffed with mechanics, each of whom had a specific task, performed repetitively with tools and car parts within easy reach of the mechanic. Whereas now, there is such machinery as cnc turning centers used to make the production of small parts efficient, amongst other mechanical equipment needed.

As is often the case with innovation, it was born of a simple stupid analogy; Ford’s team got the idea from slaughterhouses in Chicago, where a carcass moved down a conveyer belt with butchers at stations to complete specific tasks (so, a “dis-assembly” line-put a cow at one end and yield a stack of porterhouse steaks at the other). 

The Ford team’s assembly line reduced production time by a factor of eight to one. A benefit reflected in pricing:

Napier: $2,250+
Atlas: $3,500
Fuller: $2,500
Babcock Electric: $1,800
Ford Model T: $575

The parallels to the emerging digital transformation are striking. As the industry automates the entire purchase process from quoting to application to underwriting to delivery and payment of premium -a hodgepodge of providers, carriers and distributors are furiously developing their own end-to-end single session process in the conviction that their proprietary solution will be the best and capture share and grow the market.

Dream on. “There’s nothing you can do that can’t be done.” If everyone has essentially the same secret weapon, but with inconsistent interfaces and twists and turns in process, no one solution will win. In fact, we already see confusion among distributors about how to present this basket of isolated innovation to consumers and advisors.

Consider Yahoo vs. Amazon. Yahoo’s commercial model was built around providing access through its portal to over 10,000 individual commercial websites. 10,000 islands.

Amazon employed a single platform-a single look and feel, a standard format, and an ability for any provider to “plug in.” Amazon manufactures nothing (actually, they’ve recently licensed some branded products-I’m a fan of their khakis), it initially warehoused nothing, and left fulfillment up to publishers and manufacturers. The consumer experience is consistent whether shopping for books, blenders or tractors. Innovation was not stymied, but invigorated by a more efficient deployment of resources by providers-focusing on product development and market positioning.

The Yahoo model failed. Eventually, Yahoo invested $1.5 billion in AliBaba, which utilizes the Amazon model. In 2015, AliBaba sales surpassed those of WalMart, Amazon and Target combined.

Are we farsighted enough to foresee the inevitable emergence of a single dominant platform? One where the consumer or advisor experience is consistent and accessible through a single portal?

It doesn’t need to restrict the panoply of offerings-automated decisioning, drop ticket, full underwriting could all be accommodated. The capture of information could be pushed closer to the consumer, big data accessed by the portal instead of by individual carriers and bundled into a packet forwarded to the carrier of choice to be managed through their proprietary “black box.”

Advisors and carriers could develop their own voice, their own market proposition and ballyhoo the superiority of their products and services to their hearts’ content within the structure of the platform. The aggregation of consumer and advisor data -a market aggregation that doesn’t exist today-could be mined for insights around preferences, propensities and behavior. 

Remember, Amazon manufactures nothing…there is nothing to prevent an InsureTech initiative from coming over our backs and developing such a proposition. They don’t need to be a manufacturer. Can someone among us do it? Can we lead the digital revolution in our own industry?

The biggest impediment, of course, is pride of ownership. Those who have invested millions in their own proprietary process are loath to open up or collaborate with an entity outside of their organization. I believe this to be short-sighted. It would take but a few providers to participate to create competitive advantage that could not be ignored.

So, will we follow Ford down the path of efficient and effective innovation? Or will we suffer the fate of the 250 car companies who failed to do so?

Paraphrasing the words of the Louisiana troubadour, Dr. John, “If we don’t do it, somebody else will.”

Let’s Get Real.

Profit. Sales. Volume. Growth.

We want it all. We want to believe our businesses can generate healthy profits on an ever-expanding base born of consistently increasing sales.

But in real terms, our market is declining. As one company’s share grows, another company’s market share shrinks. It’s a zero sum game. The resulting fierce competition feels like a knife fight for turf among 15 street gangs in a closed-off alley. 

Lust for share in a flat or declining market can breed irrational behavior. Optimism around pricing assumptions, achievable scale, and the power of one company to drive a change in the market has us fooling ourselves. If we get the volume, the profits will come. Costs exceeding allowances will come into line. A change for the better in the investment environment, mortality improvements, and regulatory rationalization will make the business we put on the books today more profitable in the future. The new wrinkles in features and benefits we invent (more and more complex and likely not understood by consumers) will capture the imagination of retail distribution and the buying public.

Except it hasn’t really worked out. Recently we’ve seen blocks of term business written by former market leaders trade hands for less than their carrying value. Blocks of variable annuities, once the darling insurance product within financial institutions, have been written down. Long term care pricing assumptions (and prices) have been reset again and again.

There’s certain arrogance to the growth-first mentality. A pride in excelling at one side of the equation—sales growth. We may be more clever or smarter or cooler than our competitors, but in an environment where every case is price-shopped and usually granted to the lowest “bidder”, we should be doggone sure our wins are based on fundamental advantages and result in profitable sales.

In fact, we may have it backwards. What if we acknowledged that profitability really matters? What if we doggedly eliminated expenses, platforms and even products that are not demonstrably contributing to profit or growth? What if we used intelligent automation to work smarter, faster, cheaper and deliver outcomes that delight our customers? What if we had a granular view of the profitability of our businesses and steered sales toward those most profitable segments? What if we had the strength to say “no” to opportunities that have less chance of success, and the strength to sacrifice growth in sales to achieve a more profitable profile?

Then we could invest a portion of those healthier margins to experiment with initiatives that might have a chance of growing the market. Instead of charging $5 less (because consumers already believe we cost much more than we do), we could engage more of them more efficiently. We could invent new stuff that features simplicity and ease. We could identify opportunities for companies and BGAs to “dig in” with greenfield markets to eliminate the pain points they feel in dealing with our industry in its current—somewhat stale—state.

We all know that the primary root cause of our frustrations and the primary driver of our dog-eat-dog behavior is a market that hasn’t grown in over a decade. And though many of us, including me, have offered astute observations and analyses of why that is so—for some time—I’m frankly tired of all the talk. Let’s make something different and meaningful happen.

Can you create margin for investment in “the new” in your agency or in your practice? Can you utilize the plethora of digital capabilities to “get the work out”? And become less of an administrative service provider and more of a true marketing organization? Are you willing to admit that playing the same game the same way won’t work in the near future? And do you have the patience to try, fail, try, fail …reaping value in the learnings?

If so, you’re our kind of organization. [FTG]

Ease. Spark. Swagger. Soul.

Key Ingredients of Cool.

At Legal & General America, we have distilled our most cherished aspirations down to a simple, seemingly impossible declaration: We want to make life insurance cool.

We’d love to be the cool life insurance company (kinda like being the best-dressed man at the nursing home). But we really wish this for the entire life insurance industry. There’s enough unserved market for us all to be cool and prosper.

Really? Can the stuff of instant parody, synonymous with hard-sell tactics, ever be hip? Can the stock and trade of the ever-­annoying Ned Ryerson in Groundhog Day ever be cool? If it could, wouldn’t Google, Amazon or Twitter be doing it?

I believe it will take fresh minds and strong hands wringing complexity’s neck. I believe it will take a devoted collaboration of revolutionaries. But we (you and I) can make life insurance cool. Chic, even. (And by the time you read this, Google may well be doing it).

Start Simple

It has to start with the way we engage consumers. LIMRA and NAILBA were abuzz this year with commentary about our language. The words we use baffle ordinary folks. Premiums—“are they good things?” Death benefit—“there’s a benefit in death?” Maddock-Douglas brought it home in videotaped interviews of the confused.

Simplicity is our friend. It’s hard. Harder than technical jargon. But a journey to cool can’t begin with glazed eyes and heads tilted in befuddlement. We can write most of what we need to communicate in plain English with no loss of accuracy.

Digitize for Speed, Style and Simplicity

As an industry we’ve concentrated on administrative platforms that digitize:

 • applications (drop-ticket programs);

 • underwriting (automated and invisible with big data);

 • money (Paypal for initial premiums, Check 21);

 • placing the policy in force (eDelivery); and

 • service (websites that allow consumers to make their own policy changes).

Not seamlessly integrated, but capable.

We can be better understood with well thought out graphics, digital media and interesting content delivered in interesting ways. Digital marketing is the most powerful accelerant on Cool Avenue, and we’ve ignored it. There are about 226,000 results offered when one searches “bow tie” on YouTube. “Term life insurance”? 82,000. A team here at LGA bent on changing the world describes most consumer insurance sites as “lame—a form on a screen.”

Getting and Keeping Their Attention…

There’s no reason we can’t be engaging and conversational in our consumer platforms. Style, personality and voice can create a sense of community, foster trust, and help with education and learning.

Last year in this column I offered up examples of attempts by other companies to break through. Here’s another from the UK, where their TV ads are controversial and widely run: Beagle Street—www.beaglestreet.com.

Beagle Street positions itself as “new life insurance,” at odds with the industry status quo. It succeeds with simplicity and a tone that’s real. But it starts with the premise that almost everyone views life insurance as annoying. And that’s the problem.

I’m hoping for something more. If a significant faction within our business could be swank and smooth, there would be no “at odds” position. To get there, I think we need to accept and address certain realities.

No one has an intrinsic interest in life insurance. Nope. Not a chance. So seldom do we think about our mortality that most are unaware of a need for life insurance, let alone what kind, how much and for how long. And “Save Money On Your Life Insurance” will likely cause most folks to turn and run. So how do you get them to talk about life insurance? Talk about something else. Family. Fitness. Food. Wealth. All can be relatable to life insurance when the time is right.

The mildly curious, more in touch than the unaware, need education. But simple. Most protection propositions (you pay, you die, I pay) are easy to understand. The needs they address are almost always related to the loss of future income. I believe the key disturbance at this point is putting a number to the financial effect on a loved one when an unlikely early demise occurs. In monetary terms, knowing how much a life is worth. LGA paid more than $650 million in benefits in 2013, most to families and businesses who lost someone who probably didn’t think he was at risk when he bought his policy.

“I wanna buy!” When someone finally is here, we have oh-so-many opportunities to be uncool. Long forms, big words, blood work, paper, medical records, follow-up questions on intimate medical and personal details. But the industry is developing more cool alternatives…and when the right processes are strung together, it’s possible to offer a paperless, automated experience today.

Cool heaven would be an integrated community that attracts new members with content that is worthy of cocktail party conversation. A community that has avenues for education, quoting and purchasing with all downhill-ease. Using the spark of digitization and the swagger of flirtatious strut to create “Wow!” moments and repeat visits. And delivering on the noble purpose in our soul in a way that coddles our customers through their entire relationship with us—always available, always seeking to be a force for good by helping them make the right choices.

Ease. Spark. Swagger. Soul. Noble can be cool, too. [FTG]

Talk to Me. From sensationalist regulatory scrutiny to fundamental investment challenges, to a professional distribution system that is dying, retiring or just failing its way out of the industry, our business has seldom seen such a seeming conspiracy of forces working against innovation, growth and healthy win-win-win propositions between company, producer and consumer.

But is this really fair? Investment environments wax and wane, regulatory oversight has been a constant since Elizur Wright.¹ Even during the heyday of career distribution, the quest for new agents was always “on.” So the current collection of industry woes is but a point in time, a spot in a timespan of decades in which challenges have always been in place—challenges to innovation and growth.

But we’re not growing. The life insurance industry has been a $10 to $12 billion industry for 30 years. So in real terms, we’re shrinking.

And yet research studies of the past few years speak to a coverage gap—the difference between the amount of life insurance consumers think they need and what they actually have. And “think they need” is a self-determined amount, almost sure to be less than adequate for income replacement.

So what’s wrong? People know they have a need, and there’s no practical limit to the amount of product to fill that need that we can provide.

People get frustrated with the process. It’s confusing, takes too long, is often invasive and sometimes results in premiums higher than expected—not exactly a trust-building exercise.

So the industry has attacked the process: drop ticket platforms to isolate the tedious application process; an interview with people trained to do it exclusively, expertly and completely; automated quoting engines widely available on mobile, tablet and laptop, some of which have supplemental capabilities to ensure that the “right” premium is quoted; e-signatures, e-delivery, automated ordering and matching of requirements; online service and more are widely available through many companies and vendors.

Some companies are even experimenting with underwriting engines that access databases and portals in real time to make the dream of an instant decision a reality. Will that finally do it? Will a single-session process to get a quote, apply and receive a policy result in the gap closing?

I don’t think so. Our parent company, the Legal & General Group, plc, is the protection leader in the United Kingdom. Largely due to pioneering work they did over a decade ago, the single-session process I’ve just described is the norm in the U.K. for term insurance in all amounts. Though follow-up requirements can be required, the vast majority of policies are issued instantly.

Differences in their environment makes this much more feasible in the U.K.—the specter of anti-selection is dampened by different rules for contestability, and complete medical records are widely available instantly online for a small fee, thanks to government health care.

And yet the coverage gap as we’ve defined it is just as pronounced and prevalent in the U.K. as in the United States.

So what is it about us that makes needy consumers timid and reluctant to buy?

A little more than a year ago, a team of young people gathered together at LGA and were given the issue as a challenge. Nowhere is the gap more pronounced than among young people. This group of 30-somethings were asked to articulate why we as an industry weren’t reaching them during their prime years of need (small children, big mortgage balances) and to try to come up with a breakthrough to address that.

It was a cross-functional team—a senior underwriter, an actuary, a software developer, a market researcher, a creative specialist, and a tele-app team leader. Their first move was to find every way to buy life insurance they could and try them out. Weeks later they came back to the table and said:

“They’re all lame. We wouldn’t last past the first screen. Everything looks like a form—all industry-speak. They all ask for contact info right away, which we find offensive and too invasive.”

So there’s something about the way we’re engaging—or not engaging—consumers that’s putting them off from the get-go.

Is there another way? Are we so myopically limited in our views of the buying process that our vision is limited to automating a paper application that’s centuries old in its design?

There have been some noble experiments to engage the consumer in different ways:

 • INGForLife is a multimedia educational and quoting portal with rich content.

 • Heritage Union, founded by some folks outside our industry, tried to simplify the product proposition by making the death benefit an articulated income until retirement—actually paid to the beneficiary as such.

 • A successful direct-to-consumer marketer on the west coast is planning an insurance store in a mall—a walk-through center aisle experience that will draw traffic through and provide opportunity to engage.

That team of young professionals back in Urbana, MD, at the LGA home office experienced their own epiphany around consumer engagement and they are busy at work on something they hope consumers will love and embrace when rolled out.

But the point is this: As a “BGA boy,” I’ve always used the BGA’s voice as a surrogate for the broker and the broker’s as a surrogate for the consumer. I don’t believe that works anymore. Everyone in the chain should be experimenting with different ways to engage consumers and draw them toward offerings from our industry—offerings they already recognize that they need. More than talk, more than simple Facebook pages and Twitter accounts—bold actions, the type of experimentation that has made the brokerage channel the caldron of innovation in our business for decades.

And we should want to make sure it’s we who make the breakthrough. An innovation consulting firm that’s been quite visible at industry conferences warns that we might be ripe for a “Napster moment,” when someone far afield from the life insurance industry might have the breakthrough idea that finally moves consumers to action. Let’s do it ourselves.

For an even broader, mind-opening look at engagement, see the website of the exhibit at the Museum of Modern Art in NYC, Talk to Me. [FTG]

Footnote:

 1. Elizur Wright was an early Massachusetts insurance commissioner—the first to require that companies hold reserves.

The Secret To Success.*  Elsewhere in this issue, industry experts will write about the confluence of challenges facing our industry—changing regulation, capital scarcity, eroding natural distribution and—the big one—the extraordinarily persistent low interest rate environment. Instead, I thought I’d record some observations on the characteristics of successful organizations that I believe are timeless, applicable in these tough times as well as during the “salad days.”

Focus Matters. There’s an electronic bulletin board at the entrance to the Legal & General America headquarters building in Urbana, MD. Every day, it articulates how much paid production we yet need to reach our (colossal) annual goal. It translates that amount to an average needed in paid production for each business day remaining in the year. We all have access to a feed from our management information system that details submitted and paid stats in real time. Everyone—from salespeople to underwriters to customer service reps to software developers to actuaries and accountants—is focused on the goal. We celebrate milestones like exceeding last year’s record or becoming the number five company in individual ordinary face amount. But we don’t book a win until we meet the goal.

The best agencies are similarly focused. Goals and progress are prominently displayed. Whether expressed as broker satisfaction, premium volume, revenue or net income, it’s the stuff of chatter before the “lunch ’n’ learn” meeting begins. Comments to break the awkward silence in a shared elevator ride are not about the weather, but about the goal or some aspect of the goal.

Nothing is so unifying as focus on a goal. It can purge a day of irrelevant activities, make decisions easier and forge teamwork through a common purpose.

Teamwork Matters. I love visiting agencies that operate as a team. When I’m lucky enough to attend a marketing and sales meeting and hear ideas ping around the room, improved upon as they’re expressed and re-expressed, the energy is invigorating. Brokerage managers who are way ahead of goal are celebrated, those behind offered earnest advice and help. And perhaps what’s most striking about the organizations that foster the most effective teams is what’s absent (and not tolerated): malice and apathy.

I recently crossed paths with the retired chief financial officer of First Colony Life, Pete Karras. He still keeps up: “Frank, looks like you and Jimmy have a good thing going. You know what really distinguished us at FCL and made it a great company? We all wanted the same thing and there was no backstabbing.” 

Knowledge Matters. Recently we hosted our advisory group—The Ten—at our home office. On one particular day, the group was a bit flat until invited to free-associate on some of our competitors. Wow, these folks know their stuff! I believe they know more about their companies and their products than a lot of company reps. And it doesn’t end there. The best know how much it costs them to process a case; their mix of business; the details of their profit and loss (from memory); as well as regulations and their implications on product design, market trends and their brokers.

John, my mentor when I was a youth working at Floyd Land’s Union ’76 gas station, said to me after teaching me to use a piece of garage equipment, “Son, to be a success in life, you got to know your stuff.” (I’m paraphrasing.) He got it right.

There is no substitute for IQ. A deep knowledge of one’s business, suppliers and customers can be a secret weapon, making advice more valuable and relationships closer.

Opportunistic Diversity Matters. We all need to grow. We need to do new stuff, forge new relationships, enter new markets through new distribution. The best organizations entertain lots of ideas, applying their knowledge to ascertain if each is right for them. A good fit is one that leverages organizational strengths and capabilities. Taking advantage of these opportunities—and saying “no” to those that don’t fit—is a hallmark of successful organizations.

A company that was a low-cost provider of guaranteed premium term insurance, an expert assessor of mortality, found an opportunity to be a low-cost provider of guaranteed premium single premium immediate annuities used in settlement of liability claims. Not only did this new line leverage its strengths and provoke explosive growth, the longevity risk profile was a natural hedge to the book of mortality risk.

I know an agency whose founding principal was really good at making the sale of term insurance really simple: computerized sales illustrations (when this was unheard of), state-specific “app packs” with all proper application documents in one package, and a producers’ guide that spelled out in pedantic detail all the steps a rep need follow to sell and fulfill. He leveraged this talent for simplicity into a relationship with a broker/dealer to be its exclusive outside provider of term insurance. It is still one of the most productive relationships of its kind.

Another agency invested quite a bit in developing an allocation system to take advantage of a sales idea based on a specific type of qualified plan. The tax law changed and the idea was dead. The agency principals realized that the same system could be used to parse a lump sum brokerage commission into the various buckets (management overwrites, club credits) that a career agency system needed. Like them or not, thus were born brokerage-out programs—”national deals.”

Relationships Matter. We heard it at NAILBA: When what you sell is virtually the same as what your competitors sell, you must offer a distinguished customer experience. In the end, all business comes down to one-on-one relationships. We do business with people we like, in environments we like, using a process we like. Empathy, trust, deep knowledge of each other’s business (or even each other’s family and background), and sharing ideas make for a more efficient, lasting business relationship. This stuff can’t be faked.

So many companies de-emphasize this aspect of business, perhaps because it’s so hard to define. Competitive prices, efficiency, ease and the more measurable aspects are nowadays just table stakes. We all yearn for the sort of collaboration around our collective businesses that can yield new opportunities and organic growth. This only happens when the relationship is right.

Focus, teamwork, knowledge, diversity and a focus on relationships—when executed with speed, simplicity and self-confidence—constitute a powerful recipe for success. [FTG]

*Is that there is no secret to success!

Big Themes in Brokerage. “State of the Industry” is too tall an order, and probably beyond any one person’s capability to intelligently address in one article. Instead, I’d like to focus on a few big themes I observe in brokerage distribution today.

It’s a crowded market. Never have there been so many companies devoting so much attention to brokerage. The financial crisis of the ‘naughts provoked more than one carrier to abandon distribution channels and product lines that were suddenly too risky and unprofitable and redirect resources to you. Overnight, they declared themselves “brokerage only.”

Our list of key competitors in term insurance has tripled in recent years. There are so many company wholesalers on the street that many of you limit the times they’re allowed in your offices. You receive so many marketing messages from companies that they get lost; some agency principals are surprised to learn of our universal life portfolio two years after its launch. And yet the life insurance market and brokerage distribution’s share of it have remained fairly static in recent years. More companies, all seeking growth, in a fixed market.  No way can we all be made happy.

Do you have a way of focusing on those companies with which you want to grow? If I were a BGA, I’d want a company that had superior self-sustaining financial strength. I’d want a company that focuses on its chosen markets and is consistently a player in those markets, not in-and-out (“we love term…we don’t like term…we love term.”).

I’d want a company that clearly articulates its value proposition and simply communicates its strengths and weaknesses, and doesn’t try to pull the wool over my eyes. I’d want a company that helps me distinguish myself in my own crowded, competitive space through innovative communication tools and media.

Most of all, I’d want a company with whom I could forge a long term, mutually profitable relationship, where my staff and I could feel like a part of the family.

Underwriting Matters. Underwriting guidelines of brokerage carriers have become rife with subtle differences in recent years. A couple of pounds here, a few milliliters there, parental illnesses, traffic transgressions—any and all can make the difference between preferred at one carrier versus standard at another. And you’re getting really good at shopping among us. Tools like XRAE and processes like RSA MedPort enable you to provide the right recommendation when you hear from a broker, “I gotta guy…”

Beyond the metrics, some companies are encouraging you to foster close and communicative relationships with their underwriters. A visit from an underwriter is much more favorably anticipated than a visit from a marketing executive (I am not confused on this point—visitation rules sometimes get waived!). A heads-down, no-phone-calls pursuit of efficiency does not play well in all but the cleanest, no-touch cases.

If I were a BGA, I’d feel obligated to optimally place every case within the myriad underwriting guideline “grids” given the information I have, even though I realize some of those guidelines may be short-lived as part of a fire sale. I’d feel obligated even though I realize market efficiencies may result in companies receiving less of the full “bell curve” distribution of risk they were anticipating in pricing. I’d want the process to be as automated as possible, perhaps even part of the quoting exercise.

Beyond that, if I were a BGA, I’d want a few companies with whom I have a close personal relationship with key underwriting staff. I’d want to talk through a case and feel the underwriter is doing everything possible to place my case in the best class for which it can qualify. I’d even want to be able to talk about cases that are not candidates for that underwriter’s company—just to get a third-party ­perspective.

Do You Have Big Case-itis? Overheard at the recent NAILBA annual meeting: “I won’t even get involved in a case unless it’s at least $10,000 in target premium.” Really? Are you doing enough of those cases to meet all of your goals, buddy?

The agency principal who overheard and relayed this comment to me (one of the biggest term writers in America) was dismayed. He believes, as I do, that it belies an arrogance and hubris which is dangerous for our business.

If $1,000 term cases are not profitable to you, find a way to make them so. (For starters, sell $2,000 worth—odds are the client needs twice as much, and it doubles your revenue for the same expense). It’s the milk in your store, the type of coverage American families want and need. People will stop coming to you for the expensive stuff if you don’t do a good job with term. With drop-ticket platforms like our own AppAssist program, your costs can be greatly reduced. And, by all means, take the time and effort to direct the business…not all term propositions are created equal.

If I were a BGA, I’d motivate brokers with cases of a certain size to use my drop-ticket platform. I’d cull through the myriad of term producers and choose a very few to whom I could direct business—for efficiency’s sake, as well as for the “glue” it would provide to my relationship with those carriers. And I’d invest in finding even more efficient and innovative ways to distribute pure protection propositions.

This is America. We invented the mass production techniques of the manufacturing world. We’re fooling ourselves if we think the sale and placement of a $1,000 term policy is intrinsically more complex than the manufacture and distribution of a $500 32” flat screen HDTV.

Carrier Financial Challenges. Companies are having a tough time. Of the many financial challenges we have to overcome, two stand out for me.

First, an investment environment marked by extremely low interest rates, which makes earning a spread against contractually guaranteed interest rates virtually impossible and maintaining prices of even level premium term a challenge (so sell it now!). It’s the key factor behind all of the product and commission changes flowing through the guaranteed premium UL market recently. And, increasingly, a flatter yield curve (e.g., a graph of interest rates by term from 1 month to 30 years) is a sign that the market expects this environment to persist for some time.

Second, redundant reserves (Triple X and AG38, or AXXX) on guaranteed premium term and universal life have been an issue for many companies. These issues are what’s behind the advent of term-UL and are the reason some companies came to dislike term. It drove companies to recommend funding guaranteed premium UL to age 105 instead of to the end of the statutory mortality table, age 121.

Some companies are better positioned to address or avoid these risks than others, and it’s rarely apparent from their ratings and public pronouncements.

If I were a BGA, I’d query my companies about many aspects of their financial health—from asset quality and valuation to expense ratios to mortality experience to capital capacity and more. I’d particularly want to know how a company addresses the current investment environment and Triple X, and would want to judge how sustainable their approaches are in the face of financial or regulatory turmoil.

The Big One: Distribution Erosion. I don’t need to repeat it, brokers are disappearing to retirement and death. If I were a BGA, I’d take the lead of those who continue to grow in these challenging times. I’d find new distributors among broker/dealers, bankers, property and casualty agents, health brokers and more. I’d study what “George” is doing in Southern California—hiring college graduates and teaching them to sell term insurance to families, showing them how they can make a great living selling ten policies a week. And I’d look to align with companies that will collaborate in discovering or inventing new models of distribution.

We Will Survive. While it may seem that I’m a bit pessimistic about the future of brokerage, in fact, quite the opposite is true. Over decades, many have predicted the demise of the channel (but not today!). It’s survived and thrived largely due to its capacity to wring opportunity from change. So the sea changes we are experiencing today in almost every aspect of our business really represent a sea of opportunity for those of us willing to seize it. [FTG]

Building Sustainable Advantage

What does a brokerage carrier need to have in place to go the distance?

Brokerage agencies are a resilient lot. I count many agency principals among my closest friends and have lived with them through tremendous changes in the life insurance market and distribution landscape. Somehow, they found a way to adapt, survive and even grow. Many count their tenure in generations, and though the daughter or son (or grandchild) of the founder lives in a different era facing different issues than their parent(s), they still deliver solutions to their retail distribution customers with agility and grace.

But what about brokerage companies? Where are the examples of companies that have earned a top-tier place in independent distribution and sustained it for generations? Is there a privileged spot awaiting a company built on a sustainable brokerage platform? I believe there is.

What does it take? Certainly, careful attention to the fundamental aspects of a brokerage proposition:

Financial Strength. There is no substitute for a healthy balance sheet, consistent profitability and a high quality investment portfolio. A company must be financially able to survive unforeseen shifts in the financial markets and generate capital for future growth.

Competitive Products. Every day, on every case, a brokerage company needs to be judged best against all comers to earn each sale. Competition doesn’t get tougher than that.

Compensation. As the distribution channel with the lowest fixed cost, brokerage generally pays the highest marginal compensation. Failure to be in the competitive “hunt” here can mean a company fails to get first looks.

Flexible, Thoughtful Underwriting. There’s a fine line here: Too much “flexibility” can lead to earnings issues, and too much rigidity can drive an unfriendly and sour reputation. Competitive advantage in underwriting is as much about communication as it is formal guidelines—precious is the underwriter who takes time to talk through cases.

Clean, Efficient Service. Independent distribution demands speed, and a successful brokerage company needs to design its process and systems accordingly while still offering a human touch.

Keeping these five fundamentals on the leading edge is far from simple. Financial strength suffered mightily in the past two years as companies struggled to articulate just what some of their investment holdings were worth. Regulation and low returns have conspired to make competitive pricing a challenge. Incentive compensation plans have been revamped, underwriting “niches” quickly identified and exploited, and new technology platforms continue to be introduced—all claiming to enable superior service.

Even if these basics are solidly in place, a company may be challenged to get attention in today’s crowded market, let alone sustain it for decades. To earn the type of support that can attract a consistent following from brokers, companies need a “story”—elements that collectively form the company’s personality. Such as:

People. Capable, experienced people with integrity, intelligence, creativity and drive. BGAs know better than we do ourselves where top talent is making a difference.

Relationships. Executive to executive, underwriter to underwriter, case manager to case manager—the real keys to sustainability are close personal professional relationships between carrier and agency through the entire organization. Communication breeds understanding, affinity and something all too rare— trust.

Quick Adoption. The ability to choose the opportunities that have the best potential and to invest and implement quickly. Legal & General America was quick to see the potential of tele-app programs, and continually invests in its AppAssist platform as it becomes key in our agencies’ goal to take the work out of term.

Differentiators. Legal & General America has guaranteed cash values on universal life; MediGuide Medical Second Opinion on all policies issued in approved jurisdictions; and a mobile phone app, MobileQuote, that allows one to illustrate our term plans and consummate the sale through our e-link to the AppAssist program. These lagniappes (Cajun for “a little something extra”) are unique to us.

A Sense of Mission. Last year in this issue, Jimmy Atkins eloquently emphasized that not enough Americans have life insurance and that those who do may have too little. We enhance consumer value through affordable prices, lower cost product designs (Life Value Term), and MediGuide Second Medical Opinion. We make brokers more efficient with AppAssist and MobileQuote so that they are able to make a living meeting protection needs. Our mission is to enable more producers to convey the affordability of life insurance to more American families and businesses.

A Voice. It’s crowded out there. There are more companies actively pursuing brokerage distribution than ever before. A company’s communication and messaging needs distinction to be read and heard—whether it’s humor, insight or shock appeal, offer something more than “just the facts.”

Collaboration. Agency by agency, working with principals and staff to understand the distributor’s business model in order to identify points of leverage to gain share and help the agency grow.

The Strength to Say “No.” Temptation abounds. Whether considering exotic investments offering higher returns for more risk, or contemplating highly marketable product designs with dangerous vulnerabilities, the long term players among carriers have historically had the strength to say “no” at key decision points.

Devotion to Brokerage Distribution. With the erosion of the traditional career agency distribution model, experiments in “alternative distribution” have proliferated over the past few decades. But the only channel that has demonstrated the ability to distribute life insurance through traditional and alternative retail outlets consistently over time while growing its footprint is the BGA channel.

Legal & General America is “your company for life.” The phrase embodies the overarching goal of our team…to build upon the solid brokerage foundation sustained through the last fifteen years…and to create a culture and company that can be key to our brokerage general agents and their retail customers for generations. Can it be done? We’re betting it can. In fact, we’re all in. [FTG]

A modest proposal for a change
in the term insurance sales process, and an appeal to the vendors who provide term quoting tools.

Guaranteed level premium term insurance has been a remarkably resilient product—a market leader for more than 25 years. Yet we have reduced the selling process to a commodity spreadsheet exercise in which the only value offered the consumer by brokers and general agents is the search for the lowest price.

In many cases, the spreadsheet experience leaves the client underinsured or with coverage that virtually expires before the need does. Yet one simple step can be taken to more fully engage the client, helping him understand the compromise he is making when cost is a family budget issue.

History
In the 1970s and for much of the 1980s, the dominant form of term insurance was guaranteed premium select and ultimate annual renewable term insurance (or its graded premium whole life equivalent). Rampant replacement activity in the 1980s caused primary carriers and reinsurance companies to retreat from this product form. Attempts at innovation ensued, and ultimately guaranteed level premium 5- and 10-year plans gained traction (the first major player I recall was Midland Mutual, followed quickly by Federal Kemper and First Colony Life).

The consumer appeal of knowing that the price was guaranteed and would not increase was huge, and in time (a long time—sometimes our industry is slow to see the obvious) level premium plans were available for every period from 10 to 30 years. General agents kept a relatively small stable of companies offering term insurance, choosing them based on competitiveness, compensation, service, underwriting and the strength of their relationship. Brokers relied on their general agents to direct their cases to the right carriers.

Flash Forward
It was inevitable that someone would realize that a multicompany tool to compare term prices would meet with high demand, and spreadsheet software began to emerge from third party vendors in the 1990s. Armed with comparisons across a dozen companies, brokers began to demand that their client be placed with the carrier with the lowest price. Transparency in term prices is a good thing—all else being equal, the lowest price should win—yet spreadsheet selling has some serious shortcomings, including:

• The dilution of other valuable aspects of a product and company—service, financial strength, underwriting, compensation model, convertibility options, special benefits—offered at no cost by the company.
• A barrier to product innovation (the spreadsheets’ comparison capabilities drive product design).
• The temptation of jumping to the spreadsheet as the first step in the sales process. Brokers ignore the critical step of quantifying the need and, unconsciously or consciously, compromise the amount of life insurance needed or the duration of coverage needed when faced with a “budget.”

I’d like to focus on the last point. A modest change in the way we sell could increase the value of our advice to consumers immeasurably and, quite possibly, lead to increased sales.

A Modest Proposal
How often do budgetary constraints drive a sale? Is it more common to hear “Present me with the face amount you think I need for the period I need, then we’ll compare and make a choice,” or “I can afford a premium of only $900 a year, so present the best plan in that ballpark”? I suspect the latter.

Then we “fiddle” with the spreadsheet until we have something to present. And that is usually a comparison of premiums across a constant face amount for a constant term period. By doing this, we’ve neglected to tell clients how much they need, and we’ve made some decisions for the clients that they’re quite capable of making themselves.

What If?
We first quantify a client’s need. We can do this by using the Life Insurance Foundation for Education’s “Human Life Value Calculator,” which identifies an individual’s total lifetime value to the family. It’s so simple you can do it in less time than it takes to microwave a bag of popcorn. (It’s available at www.lifehappens.org/life-insurance/human-life-value and many other places.)

Using the stated budgeted amount, present an array of term plans across a variety of term periods and designs, solving for the face amount purchased by the budgeted premium as the initial premium for each plan. This “face solve” capability is absent from the currently offered quoting engines and is the “appeal” in the subtitle of this article.

Then, sitting with the client, cover the need and review the shortcomings each choice would represent to the ideal plan. The client can choose where to compromise—face amount or plan design—or choose to increase his budget!

The sidebar, entitled “Term Premium and Face Amount Comparison” uses this “face solve” capability across a variety of term plans to help the client choose the right coverage.

A simple proposal? You bet—perhaps even trivial, but I was raised to believe the most important aspect of life insurance was the face amount in force today as well as the day survivors need it. The current process shirks our responsibilities to American families when it shortchanges the amount of coverage.

Are the term quoting software vendors reading this?