The Future of the Life Insurance Industry – If There is One!

The Aging Life Insurance Industry May be Suffering From a Serious Mental Disorder — And It Doesn’t Even Know It

Although medical science has achieved much progress in combating most of mankind’s dreaded diseases, there is one debilitating malady that remains immune to cure, and that is Alzheimer’s disease. Unfortunately, once this fearsome disease takes hold, there is no known cure and the victim is condemned to a long, slow decline and inexorable demise.

More than 25 million people worldwide suffer from Alzheimer’s. Probably the most insidious aspect of Alzheimer’s is that those afflicted seem to be “normal” and show no outward physical signs of the illness. And yet, when observed closely, it is obvious that they are losing or have lost many of the faculties necessary for a vibrant and meaningful life.

With no intent to take the disease lightly or be disrespectful of its victims, a close observation of the American life insurance industry could lead one to wonder if the industry isn’t in the advanced stages of it own version of Alzheimer’s disease. There are a number of “warning signs” that signal the onset of  Alzheimer’s. At the very least, the life insurance industry is exhibiting many of the symptoms – in an institutional form – of this dreaded and debilitating affliction.

From Outward Vigor to Inner Decay

The life insurance industry certainly has a history of vibrancy and success. In fact, the industry has compiled an almost unmatched record of achievement. By accumulating and investing large pools of capital, the life insurance industry became a critical driver of American economic growth in the 20th century. Life insurance – the product used to accumulate the capital – served the important dual purpose of protecting families and businesses against the “economic cost of dying.” For this contribution, the life insurance industry was rewarded with high levels of respect, influence and financial success. In fact, life insurance companies became the most trusted and stable of all financial institutions in the country.

But now something is changing. Outwardly the companies seem to operate and offer the same products as they have for decades, but a closer look will reveal that the industry is not what it was. It is a subtle change and it may not be fair to say that the life insurance industry – and its companies – have become irrelevant, but even the staunchest champions of the industry would have to acknowledge that growth has virtually evaporated; while the respect, influence and power of the industry has been seriously eroded.

The life insurance industry and its leaders seem to have some recognition of the issues, but like the patient suffering from Alzheimer’s, they appear to be incapable of understanding what is really going on around them or taking action to reverse the process. This is one of the reasons why Alzheimer’s is such a cruel and deceitful disease. It is not the person plagued with the disease who recognizes it, but rather the friends and family who first see the symptoms of it in the form of a reduced ability to function effectively in the world.

Understanding the symptoms of Alzheimer’s and measuring them against the attitudes and actions of the life insurance industry leads one to the unfortunate, but unmistakable conclusion that the industry suffers from many of the clear indicators of Alzheimer’s. Symptoms such as:

Memory loss that disrupts the daily functions of life

The companies that collectively form the life insurance industry seem to have a memory loss when it comes to what made them strong and successful. The industry gained the confidence of its customers by responding to their specific needs. When those needs changed, i.e. more concerned about the cost of living than dying, the industry continued to cling tenaciously to the old methods and products.

The industry seems to have no recollection that it gained the confidence of the consumer by selling products they needed to buy, rather than products the companies wanted to sell.

And this is no “senior moment;” no temporary loss of acuity. The industry exhibits no memory of the fact that its growth and success was achieved due to the effort and talent of a well-trained and dedicated sales force of agents. For some strange reason that can only be considered a symptom of Alzheimer’s, the industry set about to eviscerate and destroy the agent distribution system like a patient in denial who attacks those closest who want to help. At first, the agents were switched to “independent status” and that worked well at first, but now many companies dependent on the independent agent system are taking irrational actions (a sure sign of Alzheimer’s) to devastate even this system.

Challenges in planning or solving problems

Over 25 years ago, sales of the industry’s core product – life insurance – began to wane. For years the industry did not even recognize the problem. The companies continued blithely along, seeming content within their own world. There was no recognition that the world around them had changed.

When the problem with life sales become so obvious that even the companies had to recognize it, their actions showed that their planning and problem solving abilities had greatly diminished. Confused as to what was happening, their solution was to plan to do what they had always been doing and to lash out at the agents for not selling more of the product. This is exactly the way a person suffering from Alzheimer’s will react to problem solving.

Decreased or poor judgment

The life insurance industry has presented too many examples of this symptom of Alzheimer’s to mention, but a few should prove the point.

Many insurance company executives seem to have become dedicated to making mendacity a science and this makes reasoning with them totally futile. This is a clear sign of diminished mental capacity and a cause of poor judgment.

For example, a couple of years ago one large company, finding itself short on capital, literally came out of the blue to terminate the contracts of virtually every one of their agents. A rational person has to ask, “What were these guys thinking?” The answer of course is that they weren’t. It may not be fair to blame the executives, because something obviously decreased their capacity to make sound judgments.

Another company has made so many conflicting, confusing and convoluted decisions regarding its distribution system that neither the company nor the agents have any idea what the company wants or where it is going. Obviously suffering from a malady that causes decreased or poor judgment, the company can’t decide if it wants to work with independent or captive distribution or maybe even the broker-dealer network. Despite these conflicting actions, the company has gone so far as to threaten to withhold product from those producers who do not promise total fidelity to the company, while the company promises no fidelity to the distribution system. This is a clear the sign of a decrease in the ability to show good judgment.

Confusion with time and place

Even a cursory review of the actions of insurance company executives will demonstrate that they are confused with time and place. They remind one of On Golden Pond’s Normal Thayer who can’t find his way home after an afternoon of blueberry picking. For these executives it is like today is yesterday and there is no concept of tomorrow. A sure sign of diminished capacity. Insurance companies act as though they are still the power to be reckoned with as they were in years gone by. The management of insurance companies acts as though both the consumer and the distribution system should be beholden to them. That they have the right to act as they deem best – for the company.

For example, last year a company determined that a block of business it had written was not as profitable as they had wanted. (In reality, in order to sell the product, the company promised more than it could deliver.) To correct this situation, the company went directly to policyholders – circumventing the agents – and attempted to induce them to exchange the existing product for an inferior one. While some might say this is a simple sign of arrogance, a more charitable view would be that the executives of this company were afflicted with a disease that caused them to confuse time and place.

And the Moral of the Story . . .

What makes this situation even more pitiful is that while there is no known cure for those who actually suffer from Alzheimer’s, there is a cure available for what ails the insurance industry. The problem is that the insurance industry executives are so overwhelmed by the symptoms of their malaise that they are incapable of recognizing the problem, let alone accepting the cure.

If this continues – and it probably will – the life insurance industry will be condemned to the loneliness of its own mind in a long, slow decline that will leave the industry more and more irrelevant and consigned to the backwaters of financial services. This does not have to be, but sometimes it is the way it is.

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