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 the 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 simply 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.