For Independent Marketing Organizations the Choice is Simple: Live Free or Die!

To protect their future, IMOs should buy their own insurance company

Life and annuity insurance companies – and one in particular – seem intent on destroying the very core of the Independent Marketing Organization (IMO) concept. The motivation for this action appears to be the very idea that IMOs are “independent” and not beholden to a single company. The companies are using the tools they know – intimidation, threats, leverage and deceit in a blatant effort to take the “I” out of IMO. It is not that the companies want to eliminate the IMO, but they do want to emasculate them in a way that forces them to become, hat-in-hand, obligated to the company.

The relationship between companies and IMOs has always been a “love-hate” affair:

  • Companies love to have the IMOs recruit agents and develop business, but hate to deal with IMOs as partners.
  • Companies love the variable cost nature of the business the IMOs produce, but hate to have to compete for that business.
  • Companies love the freedom to work with any distribution system they desire, but hate for the IMOs to have the option to deal with any company they desire.
  • Companies love to be in a position to take actions that they feel will benefit the company, but hate to have the distribution system in the same position.

It is easy to recognize what the companies are doing, but the logic is hard to fathom. For the past 25 years the IMO distribution system has produced the bulk of business written by these companies and has been the catalyst for virtually all their growth and profits. The only conclusion one can draw from the efforts of the companies to cripple the IMO system is that they are motivated by insecurity and emotion, rather than sound business sense.

What seems to gall the companies – and the dolts who lead them – is that insurance and annuities are products that are sold, not bought; and this fact means the companies are dependent on the efforts of the IMO for their success. You might think that this dependence would motivate the companies to support and cater to the IMO system, but you would be wrong. Much to the contrary, rather than making a concerted effort to earn the business of the IMO, companies implement strategies designed to control and constrain the options of the IMO.

Actually, the attitude of these companies is somewhat understandable because few of the executives running these companies have any actual experience selling the product and some don’t even have a background in the life insurance industry. That’s bad enough but worse, most of those leading the marketing efforts of these companies have little background or experience with the IMO system. They come from the traditional companies where the general agents and agents are contractually subservient to and totally controlled by the company. It is an anathema for them to be forced to deal with IMOs as independent.

The Deleterious Effects of a Shrinking Industry

From the IMO perspective, the actions of the companies are even more threatening because there are fewer options available. Twenty-five years ago there were more than 20 companies aggressively seeking to write business with IMOs; today there might be three or four. When more companies were battling for the business of the IMOs, they were in the position of having to earn the business. Now, with the reduced number of companies, the survivors see this as an opportunity to leverage their control over the IMO.

It seems that every week one of these companies announces marketing agreements with a different distribution group that appears designed to circumvent the IMO system. A company certainly has a right to do this, but it is a clear lack of integrity (or a sign of insanity) to take aggressive actions to reduce the influence of the IMOs, while also seeking to shackle the independence of IMOs. For example, it has been reported that one company has told its IMOs that unless they are “fully committed” to the company, new product offerings will be withheld from them. This is corporate arrogance in its highest form.

What this all frightfully boils down to is that if the existing IMOs do not take prompt action to protect their future from the attacks of these companies, they won’t have one.

What to Do?

If that is true, what can the IMOs do? The reality is that the companies have all the money and all the leverage. They know (or at least believe) that if they withhold product, the IMO will have few options other than to succumb to company control. And yet, the logic of these companies is faulty. In reality, it is the IMOs who hold the power and leverage, but only if they unite to use it. After all, the company cannot produce new business itself and the “alternative distribution” systems they have attempted to develop produce significantly less business than the IMO system.

What the existing IMOs should do is to associate together in order to leverage the strength of what they do best – which is to recruit agents and produce business. However, it is not enough for the IMOs to band together to create greater leverage when dealing with these companies. This has already been attempted with little real success. Some IMO groups have circled the wagons in a valiant effort to defend the system, but the weakness is that the groups still need the companies if they are to have product to sell. But, how would the companies react if they knew the IMOs did not have to come to them for product to sell?

A Bold, New Creative Solution

What the IMOs should do is turn the tables on the companies. They should take the strength of the companies – the control of product to sell – and turn it against the companies. If the IMOs can put themselves in a position where they have options, it will force the companies to recognize their dependence on the IMO system. The objective is not to destroy these companies, but to create a more level playing field with parallel interests.

Eliminating the leverage of the companies created by a monopoly on product calls for radical action on the part of the IMOs, but it can be accomplished. Actually it is relatively easy. What the IMOs can and should do is band together to buy a life insurance company. That’s right – the IMOs should buy their own life insurance company. This approach is not as farfetched as some might think.

There are a large number of investment firms holding hundreds of millions if not billions of dollars looking to be invested. Many of these investment firms are highly motivated to invest in the insurance business and are looking for the right situation. A united group of IMOs offers these investment firms the answer to their number one concern: Who will produce the business and in what amount?

Investment firms look to invest with entrepreneurs who have a stake in the business. What could be more entrepreneurial than a group of IMOs who are willing to invest a portion of the capital in partnership with an investment firm in the effort to acquire a company and then produce business to assure its success?

If larger IMOs can unite, agree to invest some of their own capital and then hire an experienced and respected management team, (No, not me. I am not looking for a job) investment firms would come banging on their door offering investment funds to buy a company. The company does not have to be large; IMOs have demonstrated that their business can build a company. Of course, the company would have to be run on a sound, independent basis, but that is not an issue, especially if the IMOs have their own money invested in it. Obviously, the benefits to be derived by and for the IMOs go well beyond putting the existing companies in their place.

How would this play out? The most important point is that IMOs would have options they don’t have now: They could control their future. They would be owners of a company that would clearly be dedicated to the IMO system. Not only would the IMOs earn commissions from this company, but also participate in the profitability of the business they produce. The IMOs could certainly write business for other companies, but those companies would have to earn the business and not demand it.

There are a lot of details and issues that would need to be worked out, and there is not space in this piece to do so, but suffice to say, these are issues that could easily be resolved.

And the moral of the story …

All large corporations – insurance companies included – have a mentality of control that is based on dependence. The executives who run these companies have shown time and again that they loath and fear independence, because independence reduces control.

Insurance companies are validating this philosophy of control by aggressively using the leverage of their size; a monopoly on product offerings and the limited options of IMOs in an effort to change what they view as the frightful concept of independence of the IMOs into one of dependence.

If the IMOs do not recognize the actions of these companies for what they are, they will lose their independence and be condemned to a future of compliance and dependence. But it does not have to be that way. All it will take is a concerted, determined effort on the part of IMOs to live free rather than die.

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4 responses to “For Independent Marketing Organizations the Choice is Simple: Live Free or Die!

  1. Bob-
    I totally agree with you here. A complete separation between manufacter and distribution needs to be made while scaling up to gain the power for distribution systems to call the shots, not the other way around. This seems to be a common theme throughout financial services biz (RIA’s/B/D’s-BGA’s). Great article.

  2. Pingback: Defending the Future of Independent Marketing Organizations: Part Two

  3. Pingback: Bob MacDonald on Business « Underwriting Solutions LLC

  4. Keep working ,great job!

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