By Cyril Tuohy
A decade ago, you couldn’t walk into an insurance trade show without overhearing the whispers of “disintermediation” among distributors and financial advisors, and how the Internet was going to fundamentally alter the way life insurance products were sold.
The Internet was going to replace an entire distribution channel, so said some of the industry’s wisest minds. Carriers were going to sell directly to the consumer, dooming those who stood between the big underwriters and millions of life insurance buyers.
A decade on, there are plenty of agents and advisors still around. There are fewer of them compared to 10 years ago, it’s true, but that always had more to do with young talent choosing other fields than it did with agents and advisors getting cut out of the distribution chain.
As it turned out, the Internet simply added as a new channel to the flesh-and-blood distributors, agents and advisors who were already there. Yes, plenty of agencies saw their fair share of disruption and that led to some consolidation. But most of them survived, many even thrived.
Now, there’s a new development to the model. All those carriers with “storefronts” popping up on the Internet home page are steering would-be buyers into the industry’s distribution system, instead of closing on policies on their websites.
And why not? Chances are buyers are more likely to have heard of MetLife than they have of Main Street Insurance Agency. It also makes sense to refer a buyer to the agents who can explain the complexity of a life insurance product and match the need to the right product, said Scott Hawkins, an analyst at Conning & Co.
So, yes, consumers are buying lot of insurance products online, but they are buying them through the distribution system. The broker/general agent/independent agent channel is responsible for the majority of sales, ranging from 76 percent to 83 percent of sales, irrespective of the size of the life insurance company, Hawkins also noted.
“There's the need to attract develop and retain talent, especially since independent distribution is the primary method of distribution, but, in this environment, insurers’ ability to integrate with distributors across multiple platforms and sales and service is a differentiator,” Hawkins said in an interview with InsuranceNewsNet.
Separate surveys of agents and advisors also find that distributors prefer doing business with carriers that have a robust and integrated Internet infrastructure. Selling via tablets, smartphones, laptops or desktops, and offering straight-through processing for applications are becoming differentiators in the quest of carriers to gain access to distribution, Hawkins said.
The larger the insurance carrier, the more likely it is to use its storefront to supply information about the company, its organization structures and ratings, he said. But when it came to describing products and services in detail, the smaller the carrier, the less information it provided.
Conning’s latest findings are contained in an analysis of how carriers distribute and market individual life and annuity products.
Life insurance sales hit a record $39 billion in 2012, due mostly to whole life and universal life. The good news for the industry is that sales of life products are expected to grow through 2015 as the need for protection increases, the study found.
Even the number of insurance agents rose 1.8 percent last year, the first such increase in five years, the report also said.
With that kind of robust life insurance sales forecast, the question is who will benefit most from distributing the coverage – and how. Hawkins said there was a “bifurcation” taking place within the distribution structure of life insurance.
Younger, middle-market buyers looking for simpler products with death benefits, such as term life coverage, are comfortable shopping strictly through the Internet. That may liberate the traditional agent-based distribution system to focus on more complex policies and annuities used for estate and tax planning, Hawkins said.
In 2012, as much as 78 percent of the industry’s total first-year and single premium life insurance sales were generated by the broker/general agent/independent agent channel, and 18 percent were generated by the captive/career channel, the report said.
The remainder was generated by smaller, minor distributors, the report said.
Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at [email protected].
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