Industry Leader Forum: Legal and General America

Big Themes in Brokerage. “State of the Industry” is too tall an order, and probably beyond any one person’s capability to intelligently address in one article. Instead, I’d like to focus on a few big themes I observe in brokerage distribution today.

It’s a crowded market. Never have there been so many companies devoting so much attention to brokerage. The financial crisis of the ‘naughts provoked more than one carrier to abandon distribution channels and product lines that were suddenly too risky and unprofitable and redirect resources to you. Overnight, they declared themselves “brokerage only.”
Our list of key competitors in term insurance has tripled in recent years. There are so many company wholesalers on the street that many of you limit the times they’re allowed in your offices. You receive so many marketing messages from companies that they get lost; some agency principals are surprised to learn of our universal life portfolio two years after its launch. And yet the life insurance market and brokerage distribution’s share of it have remained fairly static in recent years. More companies, all seeking growth, in a fixed market.  No way can we all be made happy.
Do you have a way of focusing on those companies with which you want to grow? If I were a BGA, I’d want a company that had superior self-sustaining financial strength. I’d want a company that focuses on its chosen markets and is consistently a player in those markets, not in-and-out (“we love term…we don’t like term…we love term.”).
I’d want a company that clearly articulates its value proposition and simply communicates its strengths and weaknesses, and doesn’t try to pull the wool over my eyes. I’d want a company that helps me distinguish myself in my own crowded, competitive space through innovative communication tools and media.
Most of all, I’d want a company with whom I could forge a long term, mutually profitable relationship, where my staff and I could feel like a part of the family.

Underwriting Matters. Underwriting guidelines of brokerage carriers have become rife with subtle differences in recent years. A couple of pounds here, a few milliliters there, parental illnesses, traffic transgressions—any and all can make the difference between preferred at one carrier versus standard at another. And you’re getting really good at shopping among us. Tools like XRAE and processes like RSA MedPort enable you to provide the right recommendation when you hear from a broker, “I gotta guy…”
Beyond the metrics, some companies are encouraging you to foster close and communicative relationships with their underwriters. A visit from an underwriter is much more favorably anticipated than a visit from a marketing executive (I am not confused on this point—visitation rules sometimes get waived!). A heads-down, no-phone-calls pursuit of efficiency does not play well in all but the cleanest, no-touch cases.
If I were a BGA, I’d feel obligated to optimally place every case within the myriad underwriting guideline “grids” given the information I have, even though I realize some of those guidelines may be short-lived as part of a fire sale. I’d feel obligated even though I realize market efficiencies may result in companies receiving less of the full “bell curve” distribution of risk they were anticipating in pricing. I’d want the process to be as automated as possible, perhaps even part of the quoting exercise.
Beyond that, if I were a BGA, I’d want a few companies with whom I have a close personal relationship with key underwriting staff. I’d want to talk through a case and feel the underwriter is doing everything possible to place my case in the best class for which it can qualify. I’d even want to be able to talk about cases that are not candidates for that underwriter’s company—just to get a third-party ­perspective.

Do You Have Big Case-itis? Overheard at the recent NAILBA annual meeting: “I won’t even get involved in a case unless it’s at least $10,000 in target premium.” Really? Are you doing enough of those cases to meet all of your goals, buddy?
The agency principal who overheard and relayed this comment to me (one of the biggest term writers in America) was dismayed. He believes, as I do, that it belies an arrogance and hubris which is dangerous for our business.
If $1,000 term cases are not profitable to you, find a way to make them so. (For starters, sell $2,000 worth—odds are the client needs twice as much, and it doubles your revenue for the same expense). It’s the milk in your store, the type of coverage American families want and need. People will stop coming to you for the expensive stuff if you don’t do a good job with term. With drop-ticket platforms like our own AppAssist program, your costs can be greatly reduced. And, by all means, take the time and effort to direct the business…not all term propositions are created equal.
If I were a BGA, I’d motivate brokers with cases of a certain size to use my drop-ticket platform. I’d cull through the myriad of term producers and choose a very few to whom I could direct business—for efficiency’s sake, as well as for the “glue” it would provide to my relationship with those carriers. And I’d invest in finding even more efficient and innovative ways to distribute pure protection propositions.
This is America. We invented the mass production techniques of the manufacturing world. We’re fooling ourselves if we think the sale and placement of a $1,000 term policy is intrinsically more complex than the manufacture and distribution of a $500 32” flat screen HDTV.

Carrier Financial Challenges. Companies are having a tough time. Of the many financial challenges we have to overcome, two stand out for me.
First, an investment environment marked by extremely low interest rates, which makes earning a spread against contractually guaranteed interest rates virtually impossible and maintaining prices of even level premium term a challenge (so sell it now!). It’s the key factor behind all of the product and commission changes flowing through the guaranteed premium UL market recently. And, increasingly, a flatter yield curve (e.g., a graph of interest rates by term from 1 month to 30 years) is a sign that the market expects this environment to persist for some time.
Second, redundant reserves (Triple X and AG38, or AXXX) on guaranteed premium term and universal life have been an issue for many companies. These issues are what’s behind the advent of term-UL and are the reason some companies came to dislike term. It drove companies to recommend funding guaranteed premium UL to age 105 instead of to the end of the statutory mortality table, age 121.
Some companies are better positioned to address or avoid these risks than others, and it’s rarely apparent from their ratings and public pronouncements.
If I were a BGA, I’d query my companies about many aspects of their financial health—from asset quality and valuation to expense ratios to mortality experience to capital capacity and more. I’d particularly want to know how a company addresses the current investment environment and Triple X, and would want to judge how sustainable their approaches are in the face of financial or regulatory turmoil.

The Big One: Distribution Erosion. I don’t need to repeat it, brokers are disappearing to retirement and death. If I were a BGA, I’d take the lead of those who continue to grow in these challenging times. I’d find new distributors among broker/dealers, bankers, property and casualty agents, health brokers and more. I’d study what “George” is doing in Southern California—hiring college graduates and teaching them to sell term insurance to families, showing them how they can make a great living selling ten policies a week. And I’d look to align with companies that will collaborate in discovering or inventing new models of distribution.

We Will Survive. While it may seem that I’m a bit pessimistic about the future of brokerage, in fact, quite the opposite is true. Over decades, many have predicted the demise of the channel (but not today!). It’s survived and thrived largely due to its capacity to wring opportunity from change. So the sea changes we are experiencing today in almost every aspect of our business really represent a sea of opportunity for those of us willing to seize it. [FTG]

January 2012 Issue of Brokerworld Magazine. Author’s Bio Frank T. Gencarelli Senior Vice President, Sales and Marketing.

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