The recent blog discussing Michael Diekmann’s public acknowledgement of serious problems at Allianz Life that needed to be fixed, generated some intense activity and numerous cogent comments. While all comments were germane (not German) to the topic, one raised a particularly logical question. The subject of the comment was “reciprocal commitment,” or in short, loyalty to and from the company and the agent. This issue goes to the core of the relationship between an insurance company and its distribution system and as such deserves more detailed attention.
It has always been my philosophy that if a company depends on independent (as opposed to captive) marketing companies and independent agents for the bulk of its business, then it is incumbent upon the company to earn the commitment (loyalty) of the distribution system, not the other way around.
Those who worked with me at ITT Life, LifeUSA and Allianz constantly heard the refrain, “The independent agent has a choice as to where they place their business and is under no obligation to send us their business; we have to earn it.” And, it was not just the first “app,” it was each and every one that had to be earned. From my perspective the independent marketing organization and the agents were the customers of the company (the policyholder was viewed as the customer of the agent) and like all customers who have a choice as to where they place their business, we as the company had to earn that business. And it was earned by providing value added, competitive products, and outstanding service along with respect and support for the very independence of the distribution system.
“There’s something wrong with us, something very, very wrong with us. Something seriously wrong with us . . .”
— Bill Murray, Stripes
Based on the steady stream of bad news, you’d think Bill Murray was addressing top managers of America’s biggest insurance companies – rather than the misfits and assorted losers of his fictitious 1981 army platoon. If you don’t see the similarity, take a look at a recap of recent industry news and see if you don’t draw the same conclusion that there is something very, very wrong with the current health of the insurance industry and the culprits who made it all possible:
• The 24-stock KBW Insurance Index fell 48 percent in 2008, with MetLife down 43 percent, Prudential off 67 percent and Hartford plummeting 81 percent.
• A.M. Best Company, the primary rating agency for the insurance industry, downgraded 43 companies and issued only 14 upgrades. In the annuity sector Best issued 31 downgrades and only eight upgrades.
• AIG, one of the largest, highest rated and most respected companies in the industry pleads for, and receives, $150 billion in government funds, just to stay in business (the company is now effectively under the control of the government). Continue reading
Posted in Blog, Business Ethics, Business Management, Financial Services, Insurance Marketing
Tagged A.M. Best, AIG, Hartford Insurance, insurance, insurance industry, Insurance Marketing, Prudential
It is not nice to say, “I told you so,” but it sure is fun.
In November, 2008 I posted a blog on this web site titled “Insurance Industry a Guarantee for Trouble.” You can read the entire blog, but here are its highlights:
• Some of the most venerable companies of the insurance industry have been sucked into the maelstrom of the financial crisis.
• Highly respected icons of the insurance industry such as Hartford, Prudential and Met Life are seen scrambling for capital and watching their stocks being hammered into oblivion.
• The Hartford took in $2.5 billion from Allianz SE, but it was not enough…The need for additional capital, the battered stock value and the panic restructuring to qualify for bailout funds means that even the management of these companies recognize that under current conditions they are incapable of meeting the promises and guarantees they have made to policyholders…
The thesis and critical charge of the blog was this: Management of companies such as The Hartford lost sight of the very principles of insurance – understanding and managing risk – and as a result they were in danger of destroying their companies and harming the total industry. Continue reading