Be Careful What you Pray for; You Just May Get It
Although you may not be up on your Bible software, many of my readers are familiar with the Old Testament book of Deuteronomy, wherein it is written, “God so loved the world that he created the life insurance industry” (just after He had created used car salesmen and carnival barkers).
In the beginning, His creation was good. Yet, He was divided and perplexed: How can He vest the industry with tools that would enable it to successfully compete with the likes of bankers and investment companies for they had been abundantly graced with the incentives of “greed and gluttony”? (God had recognized bankers are his “special needs” children and decided to give them really simple things to do and lots of people to watch them, so they would not hurt themselves or others).
Recognizing that it would be difficult to compete against the investment industry’s Big Gs, God, in his Almighty wisdom, decided to bestow the insurance industry with His own personal powers of wrath: “fear and guilt.” Accordingly, the insurance industry heaped these stresses upon the masses to help sell otherwise lackluster insurance products: “Fear” of loss was from investments and “guilt” was the price you paid for dying and not taking care of your family. Together, they became industry shibboleths.
It was further written (Book of Mac: 2:14) that the insurance industry used these apocalyptic emotions to become even richer, and more powerful than its evil stepsisters of banking and investments. But that was not enough for the insurance industry brethren. They became covetous of how bankers could easily gouge customers with a myriad of “service fees” and usurious interest rates. They solemnly prayed for their “share” of the mammon, and then copied these evil ways.
Likewise, the insurance industry dreamed of the multitude of policies they could sell, if only it could use “unbridled greed” as a motivator, the way investment companies did. And so it came to pass.
But there was a horrific price to pay. As time went on, the insurance industry came to view its successes as more of an entitlement, than something to be earned. This attitude lured the industry into the sin of sloth and it began to exhibit languor, apathy and lethargy in responding to change and meeting the needs and expectations of its customers. So it was written; so shall it be done.
Whatsoever a Man Soweth, That Shall He also Reap
The trouble is, even with all of God’s help, the life insurance industry has screwed up. And even though you may not believe this Biblical interpretation, the fact is today’s life insurance industry is a serious candidate for eternal ruin and damnation, as well as the psychiatric couch. And I don’t mean your neighborhood shrink’s divan, either. I’m talking about something on the order of the Vienna Psychoanalytic Society in Zurich.
In the vernacular of today, the life insurance industry has “gone off its rocker.” Its actions have become erratic, inconsistent and even self-destructive. It suffers from schizophrenia, dissociative identity disorder (split personality), a serious bipolar disorder with clear symptoms of manic depression, delusions of grandeur and paranoia. (Other than that, it would be judged as doing just fine.)
Some of the troubling symptoms the insurance industry has exhibited include:
- Delusions — believing their power and place in financial services are omnipotent; acting as though the past will be the same as the future.
- Hallucinations – hearing voices or believing things that are not real are real.
- Disorganized speech and behavior — difficulty organizing thoughts, remembering things, saying different things to different people or the inability to keep several ideas in mind at the same time.
- Limited emotional expression — finding it hard to show concern or emotion for others; especially customers, agents and employees.
- A lack of motivation — difficulty starting and following through with plans and activities.
- Confused thought and speech — often not talking as much and when they do, talking only to themselves. No longer finding pleasure or interest in the activities of life.
It is a shame that the life insurance industry seems to have very little life left in it; an industry that grew healthy by supporting life is now in need of life support. While the delusional mentality and confused actions of those running the insurance industry have masked the problems, making it difficult to find viable solutions, there are many other factors that have also contributed to the poor state of mental and physical health of the industry. But the entire situation can be encapsulated in two areas: 1) a failure to invest in the future of the industry, 2) movement away from products that are immune to fluctuating economic conditions.
Investing in the Future is to Own it
The backbone of the insurance industry’s growth and dominance in financial services was the investment in, development of and control over a highly effective distribution system. The industry understood that if it were not in control of product distribution, it would not be in control of its future. Whenever thinking long term, it is always better to own than to rent. In that vein, as a long-term business, it was the philosophy of the insurance industry to own rather than rent its distribution system; viewing expenditures to support the system, not as an expense, but as an investment in the future.
In the latter part of the 20th century, when consumer needs began to change, the industry failed to recognize and respond appropriately resulting in declining sales. In an effort to prop up sales, the industry altered product emphasis from long- to short-term benefits and began coveting the customers of banks and investment firms. When this happened, the commitment and expenditures necessary to develop and own a distribution system shifted from being viewed as an “investment” to that of being a “cost.” Once it was acceptable to view distribution as a “cost,” it became okay to find ways to reduce costs; and the investment in the distribution system – recruiting, training, and supervising – began an inexorable decline. It did not take long sliding down this slippery slope for the insurance industry to reach the conclusion that it would be better to “rent rather than own” the distribution system. It is a mortal error that takes the future of the insurance industry out its control and places it in the hands of its enemies.
Now, more and more – thinking it is more efficient and less costly – insurance companies are entering into arrangements with banks and investment firms to “rent” their distribution systems to sell insurance products. This is worse than sleeping with the enemy – it is making a deal with the devil for salvation. Banks and investment firms couldn’t care less if the insurance industry goes to hell; they will do all in their power to leverage their control of the distribution that will ultimately make life for the insurance industry a living hell.
Selling the Value of the Guarantee Versus the Potential of Performance
Traditionally, life insurance products were sold based on the “value” of eliminating fear and guilt; the products offered guarantees and security that could not be matched by banks and investment firms. This approach not only created a distinction between insurance and investment products, it also insulated insurance products from the impact of changing economic conditions. It was the value of these guarantees and the security they offered that made the products attractive; in virtually any economic environment. However, once the insurance industry made the twin decisions to reduce its investment and control of distribution and to compete on the turf of banks and investment firms, the nature of the product design changed radically.
Value was sacrificed for price and the products began to become commoditized. (It takes less training and is easier to sell based on price than value.) Additionally, the appeal of the products was shifted to the beguiling allure of being “interest sensitive.” Once “interest sensitivity” became the primary selling point for insurance products, they became vulnerable to any shifting interest-rate environment.
“Interest sensitive” products have become a double-edged sword at the throat of the insurance industry. If interest rates decline (which they have) to historic low levels, it becomes difficult – if not impossible – for the industry to design products that are both marketable and profitable. If future interest rates were to rise significantly (which they will) the old policies, sold at the lower rates, will be vulnerable to replacement, causing further losses for the insurance industry.
With “interest sensitive” products, the insurance company generates profits based on the “spread” between the interest rate it can earn and what if has to pay the policyholder. If that spread reaches certain minimum levels (which they have) is literally impossible to make a profit. In response to this, companies have begun to develop “wrapper” products that can be sold by banks and investment firm. This approach may protect the insurance company, from “interest sensitive” risks, but the only source of profit for the insurance company comes from “fees” on the product, not the product itself; which of course go to the investment firm.
The life insurance industry is certainly not in an enviable place today. The real question is whether or not it will even have a place in the future. If the current trends continue, the life insurance industry may be relegated to selling commoditized life insurance on the Internet and with no guaranteed access or control of a distribution system of its own; it may become nothing more than an adjunct for banks and investment firms.
And the Moral of the Story …
If only it were not so important and the potential opportunity so great, it might be tempting to let the demented leaders of the life insurance industry live in their own delusional world; but that would be a waste of a good life. What the leaders of the life insurance industry need is a good dose of shock-therapy; maybe that will bring them back to some sense of reality.
When consumer needs began to change, the fundamental error made by the leaders of the insurance industry was to see these changes as a rejection of consumer’s desire for guarantees and security. From this flawed analysis flowed the belief that the way to retain and recapture the consumer was to offer copy-cat products of banks and investment firms based on greed and gluttony. This conclusion led to a chain-reaction of decisions and actions that have all but destroyed the power, potential and future of the life insurance industry.
The consumer did not reject the value of guarantees and security; they simply wanted a different type of security. A security based on living, rather than dying. The sad part is that now, more than ever, the consumer is concerned with guarantees and security; they have learned the lessons of the risks of greed and gluttony. Unfortunately, at a time of most opportunity, the life insurance industry is least prepared to take advantage of it.
It won’t be easy, but it is not too late to save the life of the insurance industry. The problem is that to do so, will require a brutally honest and painful “intervention,” and there is no guarantee the leaders of the industry will admit to their illness and accept the treatment that will give them their life back. Still, God works in mysterious ways. Perhaps there’s still hope for a Divine intervention.