The existing system of bringing new producers on board a life and annuity carrier is not always a slam dunk. The problems are particularly acute in the independent agency system, according to a new report on insurance producer management from Aite Group.
The problem is the technology that is used to make it all happen — or rather, the technology that’s often not used.
The brokerage general agency (BGA) channel, which is the largest distribution channel for selling life products via independent agents, is the site of the biggest “pain point,” according to the report.
The carriers using this channel have difficulties with producer onboarding, credential management, compensation calculation and payment, and performance reporting, the report said.
BGAs are constantly recruiting new producers and trying to onboard these producers to select carriers as efficiently as possible, the researchers allowed. However, many carriers commonly use a manual, paper-based process when onboarding these producers.
That’s a problem because paper-based approaches traditionally have caused not-in-good-order (NIGO) rates of more than 50 percent at those carriers, the study found.
Readers will recognize that NIGO problems are not exactly new. Carriers encountered NIGOs for years when all life and annuity insurance applications were handled by paper. With the rise of software systems that enable producers to enter applications electronically, these problems have subsided. But NIGOs still exist in field offices where there is lack of suitable online access and/or where agencies have difficulties using the technology.
What the new report is spotlighting is yet another area where NIGO problems still live.
The researchers found some other problems related to the BGA channel too. For example, once new producers are on board, carriers encounter difficulties with calculating the correct commissions and incentive compensation for those BGA-contracted producers.
“It is typical for BGA sales hierarchies to be 10 people or more deep,” the researchers explained. That is, one producer recruits other producers and then receives a share of those new producers' commissions. Then, those new producers recruit still other producers and likewise share in those commissions. With so many layers, the compensation calculations get tangled.
The frequent use of “ad hoc” types of incentive compensation, like special types of bonuses and trips, adds to the complexity, the researchers said. So does a “significant reliance” on commission advances to help smooth producers' income.
It’s not just carriers that struggle with this. After the carriers complete their calculations and pay their commissions and incentive compensation to BGAs and producers, “the pain transitions to the BGA,” the researchers said.
Here too, a paper-based system appears to be a trouble spot. It is still standard practice to send bulk, non-itemized commission payments to producers and their BGAs, often using paper, the researchers explained. That forces the BGA to reconcile the accuracy of producer commissions and incentive payments “in a very manual, inefficient way.”
It may seem that the researchers have uncovered a seemingly hopeless problem. But that’s not the direction of their remarks. They couched the problem in terms of it being an opportunity for carriers.
“With industrywide life insurance policy sales continuing to fall,” they wrote, “simplifying this non-itemized, hard-to-reconcile approach to commission calculation provides a major opportunity for life and annuity companies to differentiate themselves with BGAs and take a larger part of a shrinking pie.”
Some relevant points have to do with what independent producers want. The study found that:
- They want a single user interface that is already embedded in their existing workflows to complete their onboarding (as well as new-business submission, in-force business and compensation-reporting requirements).
- They do not want to access multiple insurance company-specific producer portals, all with different workflows.
About annuity sales
The researchers had some words specifically concerning sales of annuity products and the prospects for broker/dealers (BDs) versus BGAs in this market.
In the past 10 years, BDs have become increasingly important distribution channels for annuities, they wrote. The comments did not indicate whether the reference was to variable annuity sales, fixed annuity sales or both. Based on industry trends, the reference is most likely to variable annuities, with some fixed annuities mixed in (since BDs have been selling more of these products in recent times).
The problem the researchers identified is that reps at wirehouses and independent BDs often want to be paid electronically on the same or next day. They also want automated processing for commission chargebacks or other exceptions.
The top 20 carriers that sell annuities through the top 10 BDs can meet these requirements, the researchers said. But that’s not the case with carriers that want to grow sales through non-top-10 BDs and banks. Those other carriers need to increase automation of their commission setup, calculation, and reporting capabilities to become competitive, the Aite report said.
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