When it comes to solving problems or taking advantage of promising opportunities, all too often too many confuse complex and complicated with innovation and creativity.
Do you remember the first time someone explained the “KISS” formula to you? For me, it was probably my first day as an insurance agent in 1965. A grizzled veteran (he was probably 35) sat me down and said, “Kid, I want you to know that the secret to success is the KISS.” Seeing my perplexed look, he leaned forward and said, “Keep it simple stupid.” It was a lesson I took to heart, but over the years I was struck by how often that concept was propagated and then totally ignored.
Even today, I never cease to be taken aback by the extent some business wonks will go to take something simple and make it complicated. The life insurance industry is certainly not alone in doing this, but it does set the gold standard when it comes to offering incredibly complex solutions for simple, straight-forward problems. In falling prey to the fallacy that complexity equates to creativity or innovation, the life insurance industry lost touch with the three attributes that were the basis for its past success – simplicity, safety and security. In so doing, the industry has put its success, profitability and even future viability at risk.
You don’t have to be in the life insurance business to learn from its missteps. By understanding the false assumptions, critical mistakes and shortsighted actions taken by the leaders of the life insurance industry, anyone in any industry, can learn that simple is better. Those responsible for the success of an organization can be more effective, efficient and successful when they recognize that byzantine solutions to simple, straightforward problems – such as those adopted by the life insurance industry – often only make the problem worse.
The 20th century was glory-time for the life insurance industry. By offering a simple solution to a vexing problem, the life insurance industry evolved from an obscure group of small companies catering to the elite into a ubiquitous highly-powerful industry meeting the needs of the masses. As the Industrial Revolution drew people from a self-sustaining life on farms to the cities and onto the payrolls of factories, the survival of families became dependent upon a salary earned by the husband, instead of crops raised by the family. Families soon recognized the risk to financial survival should the head of the family die and the cash stopped. For the first time in history, people became concerned about the economic cost of dying young; and during most of the 20th century people did die young.
The life insurance industry perceptively recognized the emerging opportunity and stepped up with a simple solution to the problem. They began to offer an easy to understand, affordable product that made the simple promise that the insurance company would be there to provide cash for the family if the breadwinner died. Using this unpretentious approach to a pressing consumer need, by the 1950’s life insurance was considered a necessity for any young family; so much so that even the government gave the product tax-favored status. And for their effort, life insurance companies became some of the largest and most profitable financial institutions in the world.
But times changed. By the latter stages of the 20th century longevity for men had been extended from 42 to 74 years. (Even longer for women!) Almost overnight consumers became less concerned with the cost of dying too soon and became focused on the cost of living too long. By the end of the 20th century, the pressing – even frightening – financial question changed from: Will I live as long as my family needs income? to “Will my income live as long as I do?
This new financial concern created an even greater opportunity for life insurance companies, because of all financial-type companies, life insurance companies were best structured solve this problem and benefit from the opportunity to do so. Unfortunately – happy with the past – the industry was late to recognize the change and was even more reluctant to respond to it. The life insurance industry paid a high premium for this recalcitrance to change; seeing its products move from the forefront of consumer needs to nothing more than an afterthought. The result was what might be expected: reduced sales, declining profits, consolidation and even failure within the industry.
When the honchos of the life insurance industry finally acknowledged the change in consumer needs and wants, they compounded their tardiness by ignoring the very strengths that initially built the industry – simplicity, safety and security. And even worse, they exacerbated the problem by attempting to replicate the products of banks and investment companies, rather than concentrating on the strengths and advantages of their own industry.
When it comes to an individual’s concern for financial security between the time of retirement and death, the vast majority of consumers have only two questions: Will the money I have be safe? Will the income my money produces last as long as I do? That’s it – nothing more – simple and sweet. All else is extraneous and of declining value that only serves to complicate and confuse the solution; while delaying action.
I know there are those who believe the primary motivating factor for the consumer is the level of income, not the safety or longevity of the income, but they are wrong! Striving for the maximum level of income as the basis for a sale, is only an excuse and invitation to make the solution more complex and complicated. (Just like investment products!) The race to provide the most income leads to layer upon layer of complexity and convoluted “benefits” that only serve to confuse and confound; literally losing sight of the simple problem to be solved.
As the life insurance industry has painfully learned, this mindset can lead to troublesome regulatory issues, suitability questions and expensive litigation, caused by products so complicated and complex that not even the salesperson can understand them, let alone the consumer. And it is all for naught, because the reality is that not all, but the vast majority of consumers would opt for lower income in exchange for the absolute certainty that their money is safe and the income will continue, no matter how long they live; as opposed to a little higher income, but with less certainty that their money is safe and that the income will live as long as they do. (People can adjust their standard of living to a guaranteed fixed income much easier than they can to one that is variable and uncertain.)
In doing research for this blog, I looked at “product sheets” for two companies selling income products. One company offered 37 different variations of product, while the second company topped its competitor by offering 47 different products; all intended to meet one simple problem. That’s two companies – out of a very large industry – offering 83 different types of income products; just imagine how many there are in total!
Why is it that companies would respond to such a simple need, with so much complexity and befuddling products? Well, believe it or not, one answer is – because they can. Lacking an understanding of the true creativity of simplicity, insurance companies have defined innovation and ingenuity as the number of “new products” that can be put on the street. Another problem is that often insurance executives (most whom have never been face to face with a consumer) believe that the best strategy to increase sales is to be all things to all people. This philosophy requires products that target even the smallest sliver of the market, rather than the largest segment of the market. This approach leads to increasing complexity and confusion, both among consumers and salespeople charged with selling the products.
In fairness to the companies, insurance agents are also at the root of this complexity. Agents tend to believe that if the company will give them “just one more new product,” their sales will significantly increase. This belief is born out of the idea (hope) that a product can sell itself, but that never happens. The value of the agent is to sell the product, not take orders. The more products there are to offer and the increased complexity that comes along with them means the agents spend more time explaining (often what they don’t understand themselves) and less time selling.
Insurance companies and their agents will do better and their future will be brighter if they get back to the same formula that sparked industry success 100 years ago – KISS! The insurance industry should remember its name – insurance – and develop income products based on simplicity, safety and security. The insurance companies should take advantage of the fact that they are the only institutions that can provide a simple solution to financial needs, guarantee the safety of capital and offer the security of providing an income that cannot be outlived.
Sure, these products would not be flashy and sexy, but they would be simple, easy to understand and meet the needs of most consumers to protect their money and security in retirement. Remember, life insurance was never a sexy product, but people bought it in droves because it met their needs for safety and security. The life insurance industry enjoyed its greatest growth and prosperity when its products were simple, easy to understand and based on the inherent value of meeting a financial need and they can again if they just remember KISS.