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The Future For The Life Insurance Industry Is Simple

The path to success in a competitive market full of twists and turns is to identify the simple things to do and simply, do them.

Looking back on almost 50 years in the life insurance industry, the most striking observation is how the products and process have gone from simple to complicated. Back in the day, agents bounded out of the office in search of those folks who were worried about what would happen to their family or business, “if something happened to them.” The paradigm was neat, clean and simple: Consumers were most concerned about the economic cost of dying young and there was no shortage of insurance companies ready to offer a product to meet that need.

In fact, hundreds of insurance companies vied to capitalize on this need, and the market appeared to be saturated with competition. But because banks and investment firms were prohibited by federal law (Glass-Steagall Act of 1933) from competing in the insurance industry, the truth is that Insurance_Stabilitythe industry was, in fact, competing only with itself. This meant that the insurance companies were free to offer virtually the same products. And they did. The agents selling the products may have competed fiercely against each another, but the companies were in reality competing with – not against – each other to divide up the business.

This situation created a symmetry of simplicity that functioned well for the companies, consumers and agents. Once the agent had worked with the customer to identify, quantify and accept the financial need, the solution was simple. There were only two options: Buy either whole life or term insurance. And since all companies offered basically the same products, “shopping around” for best values was as meaningful as shopping around for a best quart of milk.

The insurance landscape was so harmonious, in fact, that the environment was devoid of product confusion and consternation for both agents and consumers. There were no class-action lawsuits claiming deception, no company departments dedicated to determining suitability or the requirement for Biblically-long disclosure statements. There didn’t have to be, because the products were simple, easy to explain and understand, and targeted to meet a specific need.

Changing Times have changed the Basic Insurance Equation

Certainly the times, consumer needs and their options have changed dramatically in the past half-century, and that has forced the industry to change as well. For individuals, extended longevity has reduced the concern for the economic cost of dying too soon, but it has increased the worry about the economic cost of living too long. At the same time, the competitive ground rules for the insurance industry have changed. No longer do insurance companies have the field to themselves to simply contend with each other for the business; now they have to compete against banks and investment firms that are now free to offer products designed to meet the same consumer needs.

One upshot of this new environment is that the life insurance industry has forfeited what had been its strength and superiority in the market: the ability to offer simple solutions to complicated problems. And yet, although consumer needs may have changed over the years, they are still just as simple. But instead of fretting about what will happen when they die, the consumer is now concerned about what will happen if they live.

Unfortunately, instead of playing to its strength, the insurance industry has fallen into the trap of developing products designed to meet what the competition is doing, rather than what the consumer needs, wants and can understand. Instead of being the competition, insurance companies are following the competition by developing products that seek to mimic those offered by banks and investment firms. And even worse, insurance companies are putting themselves at the mercy of the banks and investment companies by coming to them to distribute the products. This is never a winning proposition.

Products once intended to respond to a basic need are now structured in an effort to meet every need. The byzantine products now being offered by insurance companies are akin to selling a battery-powered Swiss Army knife to someone who simply wants to butter his bread. This leads to complexity, confusion, dissatisfaction and delusion for both those selling and buying the products. One company recently introduced a new product described as, “An indexed annuity equipped with a stacking roll-up feature plus interest credits and bonuses with the goal to maximize the death benefit.” How simple is that for an agent to explain and for a consumer to understand?

The company that introduced the aforementioned product is attempting to touch all the bases by including elements of an annuity, variable annuity and life insurance all in one policy, only to end up convolution and confusion.

But they are not alone. The variations of products offered by insurance companies have now become so prolific, complex and complicated it is doubtful that even the chief marketing officer could list and explain all of them from memory. It is telling to note that in the past, agent-training focused on teaching agents how to prospect, identify the need and close the sale; today’s training tends to be nothing more than a long, PowerPoint presentation trying to explain what the product is and how it works; leaving little time to teach agents the right way to sell it.

Certainly the changed consumer needs and increased competition from banks and investment firms call for product innovation on the part of insurance companies, but real innovation makes things simpler, not more complex. All too often insurance companies seem to have confused product innovation with complexity. The truth is that products developed to meet every need end up meeting no one’s need.

Is it any wonder that the muddled approach to product development employed by insurance companies has led to confusion and frustration for both agents and consumers? Why should the industry be surprised that agents bungle the sales process and consumers are, at the very least confused, and most often dissatisfied?

Simple is as Simple does

At the risk of repetitiveness, the dominant financial concern of the consumer today is: Will I have enough income at retirement and will it last as long as I live? Just as the life insurance industry was best positioned 50 years ago to protect people in the event of death, so too, it is best positioned to protect those who live. For the industry to take advantage of this opportunity, however, it has to return to the idea doing simple things and SSI_1_business_desksimply doing them; developing simple solutions to complicated problems.

Admittedly, simplicity is the best, but hardest thing to do, and yet the effort is worth it. Remember, true innovation is not defined as inventing new things – that is creativity – but by making things simpler to do. Putting wheels on luggage was a great innovation, because it solved a need and was so simple.

The truth is that the companies and the agents are both more enamored with the complicated and confusing “bells and whistles” added to the products than is the consumer. These “special features” serve only to confound the customer who, deep down, is only anxious for their money to be safe and that they can count on the income for as long as they live. A focus on the “unique features” of the product, rather than the solution it can provide, runs the risk of the consumer feeling they have been bamboozled. And then the problems really start.

The consumer can and will adjust their standard of living to the amount of income received, but what the consumer can’t adjust to is having their income expire before they do. It is this attitude and economic fear on the part of the consumer that gives the life insurance industry an advantage; but only if the industry offers a simple solution to this complicated problem.

Looking for Real Answers

Is it still possible to develop an innovative product that is targeted to meet the income needs of the consumer and yet be simple to understand and sell? To answer that question, think about Social Security. When it comes to income needs, Social Security is probably the simplest product one could imagine: You put in money till you retire and then you receive money till you die. The product offers few options, no hedging, indexing or “stacking roll-up” features. A simple solution to a complicated problem.

Sure, people are required to “buy” Social Security, but in every survey taken, over 80 percent of the respondents say they are happy with the program. Social Security may not provide all the income people need, but you don’t see recipients rebel against Social Security although they do mutiny against any attempt to take it away. The life insurance industry could develop and market safe, simple products the consumer and agents can understand; that simply meets the needs of the consumer. That would be real innovation.

The great opportunity for the life insurance industry is the same as it was 50 years ago – to meet the long-term financial needs of the consumer. The more simplicity the industry can bring to the process, the more successful it will be.

And the Moral of the Story …

In a changing and competitive world, it is a widely held belief that complicated problems require complicated solutions, but that is not true. Success comes with simplicity. Successful people and companies attack complicated problems with simple solutions.

The appearance of complexity in a process is often the result of a simple failure to understand the real objective. The first step to making what is complicated simple is to focus on the desired result and then work back to identify the simple actions needed to accomplish the goal and simply do them.

The life insurance industry created a grand record of success by developing products that offered a simple solution to a complicated problem. The industry began to forfeit this success when it lost focus on the changed needs of the consumer and began to offer complicated solutions for a simple problem. The life insurance industry must understand that its path to a successful future is simple.


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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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Telltale Signs of Inept Leadership and Corporate Arrogance

Some Executives Never Learn:  Competition Breeds Excellence

For insurance companies – as with most companies in any industry – the path to long-term marketing success is more likely to be achieved when the leadership recognizes and operates on the basis that the company must earn the business, respect and loyalty of its distribution system. (This is especially true if the company depends upon independent agents for its business.) When an insurance company takes actions and exhibits an attitude that it is entitled to the business written by its distribution system, it is a telltale sign that the leadership of the company is lazy or incompetent (or both) and the only strategy they know is one of corporate arrogance.

If a company is large enough and the competition is relatively anemic, it can be tempted to implement an entitlement strategy by demanding — under threat of withholding product — that it be the primary company of the distribution system. This approach might seem to be an effective use of corporate leverage against the distribution system and may bring short-term results. But in reality it is nothing more than a self-destructive act of folly. The reality is that such action sows the seeds of contempt and loss of respect by the distribution system toward the company and that will ultimately work against its success.

The dimwitted, arrogant executives who use corporate leverage to implement an “our way or the highway” mentality, openly acknowledge their weakness and short-term focus. Worse, they demonstrate an inability to develop new products and services that will earn the business, respect and loyalty of the distribution system. Instead, they are clearly intimidated by the idea of free and open competition.

The travesty in this situation is that a company that demands the support, respect and fidelity of the distribution system is the least likely to offer the same in return. The executives of these companies often display a capricious mentality that leads them to believe they have carte blanche to act unilaterally and with impunity on distribution system issues. The mendaciousness of these insecure executives, who know only the stratagem of corporate coercion, prevents them from understanding that they do far more long-term damage to their company and their own future than simply causing the distribution system to lose respect for them and the company.

This attitude of corporate entitlement is best diagnosed as the “Tonya Harding Syndrome.” If you recall, Harding was America’s preeminent figure skater leading up to the 1994 Winter Olympics in Norway having won the U.S. Figure Skating Championships. Her Olympics archrival was Nancy Kerrigan. But rather than putting forth the effort to improve her own skills and convince the judges of her superior talent, an insecure Harding allegedly conspired with her ex-husband and a couple of goons to “break the legs” of Nancy Kerrigan to eliminate her from the competition. The strategy worked in the short term (Kerrigan’s injuries forced her to withdraw from the Olympics) but it was a self-destructive act on the part of Harding that earned her nothing but long-term enmity from the skating community and for that matter, from the whole world. The same fate awaits those indolent and bungling executives who, filled with the haughtiness of corporate power, believe that the best way to win a race is to eliminate the competition, rather than to outperform it.

More Than a Convenient Metaphor

These executives fail to understand that nothing dulls the edge of competitiveness more than the lack of competition and challenge. Competition is, in fact, healthy and should be welcomed, not feared. Without competition there is no challenge to be your best. The competent and confident executive will welcome unfettered competition as an effective tool to challenge himself and his company to be the best they can be. Meeting competition head-on, rather than trying to hide from it, is the best way to measure one’s leadership and the performance of the company.

A company will ultimately do best when its leader instills a philosophy that it is not entitled to anything and must earn the business it receives. The corporate power should be used as an advantage to gain access to the distribution system in order to present its story and to acquire “shelf space” for its products, but never to exhibit the blatant attitude of entitlement. The only thing a leader has a right to demand is that the company be in a position to present its products and services to the distribution. If that is not enough to earn the business, the leader should recognize that more needs to be done.

The power and resources of the company should be marshaled to constantly strive to provide the most creative and value-laden products and support services available to the distribution system. If the distribution turns to other producers or products, it should not be viewed as a sign of disloyalty on the part of the distribution system, but that greater efforts are needed to earn the business. When a company employs blatant bullying to extract business from the distribution system it sends a message – easily understood by the distribution system – that the company is not confident in its own ability to meet and beat the competition head on.

Those leaders and companies who are confident enough to dedicate their efforts toward earning the business produced by the distribution system are the ones who in the long term will earn the respect and loyalty of the producer; along with their business.

And the Moral of the Story …

There are two types of leaders: One type seeks to use the power of position and the resources available in an effort to earn the respect, following and support of those associated with the organization. The other type of leader acts as if those same powers of position and resources entitle them to demand the respect, following and support of those in the organization.

The leader who believes that entitlement is a perk of power and position will infect the organization with that same attitude and the result will be actions taken by the organization to flaunt its power. In the end this will lead to self-destructive actions that serve only to expose the incompetence of the leader and the arrogance of the company. Psychologists will tell you that when individuals and companies act in self-destructive ways in order to experience the passing stimulation of short-term results, it is because of a fundamental insecurity about the future. This certainly seems to describe a company that acts with an attitude of entitlement to today’s business, rather than seeking to earn the business, respect and loyalty of the distribution system in a way that will assure a strong future.

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