What 30+ Years Marketing And Selling Long Term Care Insurance Has Taught Us: It is not just about good math, it is more importantly about meaningful math.
We are indeed at that proverbial fork in the road. Recent history and past performance precludes a future returning to business as usual. As our industry and our country heals and adjusts to current realities, my partner Barry Fisher and I thought now might be a good time to reflect on 35 years of product and distribution “consulting.” Our FAQ is: “What is it you guys do?” Unfortunately there is not a simple answer.
There is a special and immutable relationship between marketing art and actuarial science. The cumulative moving parts of a successful insurance company have several well established and defined disciplines. Administration, IT, underwriting, accounting and legal are all critical to success. However, theirs are, by definition, supporting roles. They will not bear the direct burdens of success or failure. Marketing and actuarial are symbiotic branches and are essential to any insurance enterprise. Both have been and forever shall be co-dependents. Even though the senior executive staff will make final “go” or “no go” decisions, they are primarily acting on information given to them by allied or opposing worldviews provided by actuarial and marketing.
Together actuarial and marketing create the bipolar nucleus that moves our industry forward. It is their combined working synergy that creates product, attempts to predict success and then subsequently measures and remains responsible for business quality and production volume. They must then intimately collaborate on needed adjustments. Together they are constantly challenged to temper good math with sales viability. Ultimately it is the marriage of acceptable levels of risk fused into sufficiently attractive product design that defines our mutual purpose and our industry’s future.
In medieval and renaissance times, kings had a variety of court jesters whose job it was to keep it real for the high and mighty. In our perspective it is often too easy to view sales concerns as comic relief to the serious business requirement of projecting accurate long term pricing assumptions. Therefore, our opening admonition is this: Just because you can make something work on a pivot table doesn’t necessarily translate into a successful product offering. As marketing and distribution consultants we are automatically identified as a voice representing the capricious nature of “the field.” We are asked to help identify prospective consumer purchase preferences as well as predict the potential enthusiasm of the agents and advisors who we ask to deliver premium on a regular and significant basis that satisfies all stakeholders.
Marketing and actuarial have historically represented the most experienced stakeholders in the insurance equation. It is specifically our depth of training and experience that places us in the center of the storm. We both operate in a known past universe of actuarial assumptions and meaningful sales success patterns. Marketing helps identify what consumers and advisors want tempered by what we know good math may actually allow them to acquire. Marketing and actuarial, in our opinion, represents the most ardent believers in the promise of what insurance offers and delivers to policyholders and their families. However, we suspect both recognize that our industry may on occasion fall short in providing suitable private insurance solutions to a broad base of consumers. Our view of how we can work together more effectively to enhance the opportunity for success by expanding our communal strength of purpose is the primary message of this experiential review.
Math or Altruism?
The symbiotic relationship between actuarial science and marketing art is also a reflection of the degree of ownership of our industry’s most sacred normative values. The certain, yet for the most part unpredictable, nature of mortality and the laws of large numbers creates the magic that is insurance. We must constantly hold the required balance between our fiduciary requirements of public financial trust up to the light of our stated altruistic goals to serve the needs of consumers. Surviving and prospering as a business is a delicate balance between risk and purpose. We may begin by protecting widows and orphans yet we also remain publicly dedicated to leveraging excessive risk associated with retirement, disability and health. There is a constant institutionalized internal requirement that as an industry we serve a greater good but that can only take place if it contributes to corporate health and wellbeing.
Good math surrounded by good intentions creates the permanent relationship between those of us held responsible for bringing in premium and those responsible for defining the basis upon which it may be acquired. This mandatory symbiosis must then draw water from the same well. We must together do all in our power to identify the consumer’s predisposition to buy, tempered by what the agent/advisor believes creates motivations to buy, and then a detailed analysis of what was purchased tempered by a careful determination as to why.
Customer Research Cannot Be Overdone
Who is the customer and what do they want? What is your strategy for listening to those directly involved in sales? What is your strategy to acquire consumer research? How does your offering, current or prospective, compliment or challenge existing sales or perceived competitor strategies? How do you think your new product or changes to an existing policy form will be viewed and adopted by the people you are expecting to represent your company? What is your strategy for developing sales intelligence pro and con in real time? All new product development will require some level of education and training; what’s your plan? What is your willingness to support and sustain a flexible and malleable learning curve before you accomplish your desired sales performance?
Perhaps the greatest protection against product failure is an advance determination of what combination of existing industry consumer analysis you will rely upon to make these most critical decisions versus your own efforts at research to determine prospective purchasing behavior. Again, marketing and actuarial will be called upon to provide their combined best guess. Together they will share a common purpose and fate.
Clarity, Transparency and Balance
Too often a clear and convincing reason why a consumer would want to purchase a new and improved version of a product becomes a victim of the urgency to get sales results. This rush to marketing justice is generally the result of C-Suite pressure to justify the corporate treasure associated with its birth. What problems or purposes is the new product or revision designed to accomplish? Was a need clearly identified when you went to the drawing board for the first time? Were the end-users’ needs and desires top of mind? As an example, it is safe to say that agents and consumers would prefer certainty; e.g. guaranteed premiums, clear and understandable benefits, ease of underwriting, transparent claim processing, predictable and reliable company financial bona fides. Is there a match between what you want and what you think your customers want? Will advisors and potential policyholders understand the method to your madness? Frankly any conversation that begins with “be sure to carefully read the fine print” should be suspect.
The devils are in the details. The base plan is simply a structural armature from which truly meaningful benefits have been strung like colorful holiday lighting. Is it long term care insurance or life insurance with a chronic illness accelerated death benefit rider? What are the benefit triggers and/or gatekeepers? Inflation options, nonforfeiture benefits, premium guarantees, possible dividend contortions, claims coordination, etc. will ultimately garner the greatest credit for sales success. Bells and whistles matter.
Again the evaluation of performance will return to the nexus of creative flexibility between marketing and actuarial. Success is often judged by trade-offs. Deal making on what benefits will not become victims of the cutting room floor should be a graduate level course. Marketing and actuarial should both arrive and leave every meeting as a measure of progress toward the “drawing board” goals. Actuarial and marketing have extensive wish lists concerning what they desire, what pricing limitations are mandatory and a knowledge of potential accommodations that may substantially impact sales.
When the marketing team arrives to negotiate with actuarial, they are prepared to compromise. Success may often be defined by how many requests can be sacrificed on the altar of corporate pragmatism and still preserve the necessity of successful sales. Expediency is not top-of-mind to marketing. There are two primary categories of product adjustments. The first may be best described as purpose and intent, and the second relative cost. An example of the first would be a conversation about how best to blunt the impact of inflation. This clear consumer benefit would lead most benefit wish lists. However, options to offset the ever increasing cost of living exist across a wide spectrum of approaches. Attempts to address the issue may include guaranteed purchase option, simple interest, step-rated increases or compound interest formula.
What makes the interaction entertaining and critical to future success is that these choices can be mixed and matched together in endless creative combinations. Subsequently each different solution will then be measured by relative cost. Marketing is notorious for trying to simplify this most important negotiation. They would prefer to view possible benefits included in base rates or riders as a percentage of premium. The initial product exercise was born with a general understanding of what level of premium would not create obstacles to sales. Generally speaking, single digit percentage increases to anticipated base premium may not jeopardize sales. Double digit increases will most likely raise our blood pressure.
Again it is the delicate balance between the initial product raison d’etre, restricted or policed by the projected math and then fueled by the strength of the marketing and sales campaign that defines every product exercise.
Revolution or Evolution
It is difficult to have this conversation and ignore the largest elephant in the product development room. Insurance is conservative by nature. It is important to acknowledge that the following comments are of a general nature. There are certainly moments in time and space where breakthrough innovation does occur (ex. the birth of universal life 50 years ago), however, for the most part insurance companies are followers not leaders. Our past product trajectory history is perhaps best defined by accommodation to market trends. When proposing new product direction or strategy the first question that frequently arises is, “What other companies have adopted this specific approach to expanded sales?” We would of course wish that the source of the inquiry is to evaluate the competition. Insurance companies are not banks; their ultimate success is not built from a lack of risk. The rationalization for examining the mood of an existing market is more likely to determine what level of risk the competition is willing to accept and still market forward.
Product evolution is traditionally gradual and incremental. It is a process of demand from consumers interpreted and voiced by agents. Insurance companies do listen to the field. And this constant bombardment of requests in product revision must again be filtered by the established marketing personnel who must then turn immediately to the actuarial gatekeepers to define what is possible. None of this ongoing process exists in a vacuum. All stakeholders at the company are keenly aware of what the competition has found to be successful. This is true from IT’s wish for platform upgrades to underwriting innovations in evaluating A1c levels. There has never been any respite from the need to change and evolve. Insurance product is not static, markets do evolve and consumer and advisor preferences must be constantly monitored and evaluated. Evolution is constant and product or marketing revolution is rare but not unknown. It is important to add that this industry’s universal opportunity to adjust to a changing sales environment is also frequently subject to significant influence from both political and industry regulation and legislation. In fact market changes are often, as an example, measured by their distance from the implications of specific insurance industry regulatory mile posts such as HIPAA or the PPA. It is specifically government and regulatory revisions or expansions that ultimately define the trajectory of future product premium growth. In our view it is again the unique mutual responsibility of marketing and actuarial that creates the impetus and the voice to upgrade the regulatory environment designed to facilitate consumer interests. Changes in life, annuity or long term care Model Regulations are a real time reflection of the need for change to improve fiduciary guidance and the opportunity for increased market objectives.
In addition it remains critical that we maintain an eclectic view of potential solutions. The classic example of marketing concept cross pollination would be to monitor sale activities which occur within a broader market context such as the development of worksite product or underwriting solutions. Worksite sales success is often a result of product compromise to accommodate blended mortality and morbidity assumptions based on enhanced participation and potentially accelerated lapse scenarios. Worksite sales success therefore traditionally may also reflect a reduced or abbreviated underwriting environment. It is specifically this product flexibility that may offer guidance as to individual product development. In our opinion a more rapidly evolving group market may provide guidance and context to evolving product trends. Another developing resource is the rapidly evolving virtual underwriting environment. Underwriting of senior products or long term care planning options is frequently defined by the degree of the absence of underwriting obstacles and the acceptance of virtual underwriting technologies.
No Plan of Battle Survives First Contact With The Enemy
Regardless of how brilliant and innovative an initial product introduction may be, its ability to accomplish projected premium objectives may flourish or wither once it meets the reality of agent and consumer acceptance. All the careful planning, market analysis, internal financial implications, IT strains and projected product introduction cost implications will not hold water if distribution or consumer predisposition fails to gain any meaningful traction.
It is also critical that you begin the sales journey with a clear understanding that there are always two bad numbers: Too much sales success and too little. This is the proverbial and mandatory Goldilocks principle. As marketing consultants the most feared question we know we will be eventually asked by our corporate clients is: “Based on the product parameters we have just helped assemble, what are your production projections?” Finding that middle ground sweet spot that justifies the development cost, promises the sincere hope of quality and meaningful quantities of new premium yet does not jeopardize current production or require supplementing unexpected reserve strength, lies at the heart of the whole process.
To be continued.