Advisors Central to a Recast Life Insurance Model

Boosting agent productivity will be a requirement if life insurers want to thrive in the 21st century, according to a new report.

Life and annuity companies must embrace a better approach to organizational performance and culture if they want to avoid stagnating and falling behind other companies in the financial services sector, the report found.

And third, life insurers are going to have to deliver products faster, and offer services and an experience that benefits policyholders first, said Antonio Rodrigues, a consultant at Bain & Co., and author of “How to Breathe New Life into Life Insurance.”

For a heavily regulated industry used to long time scales and to developing products for agents first and consumers second, the changes won’t be easy, but they are achievable.

“It can be done but it does require aligned leadership from the CEO down through the organization,” said Rodrigues, a partner with the Financial Services practice in Bain’s Toronto office.

Wading Around a Stagnant Pool

Right now, the industry is treading water.

Life insurers suffer from a degree of misalignment, whether due to spotty customer experience, lagging or uneven technology adoption or siloed product sales, Rodrigues said.

When interest rates are low and premium revenue flat, as they are now, that business model is most exposed.

U.S. life insurance net premiums ended 2016 with $598 billion, down from $636 billion in 2015 and $644 billion in 2014, the report found.

That represents a 4 percent drop in net premiums over 2014-2016, the report found.

In 2013, net premiums were $563 billion, nearly unchanged from $566 billion in 2006, the Bain study also found.

“Their traditional model is stagnating,” write Rodrigues and co-authors Jed Fallis, Henrik Naujoks and Harshveer Singh.

Leading life insurers recognize the need to overcome inertia, to change behavior in fundamental ways and to hold more internal processes and managers accountable and jettison underperforming parts of the business, the consultants wrote.

Forces in and Out of Their Control

Insurers aren’t solely responsible for their plight, of course.

Falling U.S. government bond yields, over which the industry has no control, mean insurers earn less on fixed investment portfolios and face erosion of profit margins.

The lower the profits, the less available to reinvest.

But life insurers have more control over other metrics like rising distribution costs and rewarding a performance culture, the consultants wrote in their 30,000-foot view of the industry.

In 2016, U.S. life insurance industry expenses reached $143 billion, a 20 percent rise over 2010, the Bain report said.

Commissions grew at a 5 percent compound annual growth rate from 2010 to 2016, and “distribution support” grew at a 3 percent compound annual growth rate over the same period, the consultants found.

Distribution commission costs have been an industry reality for decades but if commission levels are going to remain the same – and in many cases commissions are going down – then agent productivity will have to rise.

“Costs are not sustainable and commissions are a big part of the cost structure, so the agents have to become more productive, and if they are they will drive costs down over time,” Rodrigues said.

With millions of consumers unsure about how to secure retirement income in the face of disappearing pensions, agents and advisors will remain vital to insurance sales and distribution, as they have in the past.

Advisors will stick around for a long time, so the question is how to deliver advice to more people at lower cost, Rodrigues said.

Agents on the Frontier of Efficiency

Internet algorithms, or roboadvisors, have taken a step in this direction and gathered billions of dollars in assets.

Industry analysts say advice delivered via the Internet makes sense for smaller or “younger” accounts owned by millennials with few years in the workforce and weaned on websites, social media, apps and mobile platforms.

Some insurers have recognized the changes and even bought their own roboadvisors.

Still, traditional advisors are going to have to become more efficient and productive, and insurers have a vested interest in helping them do so using digital technology, the consultant said.

Waiting 30 days for an insurance policy is no longer something to aspire to, he said.

Advisors need to “up their game and the insurance company can help them so there’s an opportunity to drive agent productivity,” Rodrigues said.

Progressive insurers are cognizant of the trends and advisor pilot programs are underway at more than one company.

Other big life insurers are aggressively moving into digital channels and still others have bought agent training consultancies to help improve agent productivity.

Digital and mobile channels alone will boost productivity allowing the industry to survive with fewer and more productive advisors, he said.

As advisors retire and a new generation of younger advisors step into their predecessor’s shoes, “the bar will be raised on advisors,” and that will be golden opportunity to for insurers to boost productivity, said Rodrigues.

InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].

© Entire contents copyright 2018 by InsuranceNewsNet.com Inc. All rights reserved. No part of this article may be reprinted without the expressed written consent from InsuranceNewsNet.com.