Regulations Batter Independent Agent Channel

By Cyril Tuohy

Over the next two years, the insurance broker-dealer channel is expected to overtake the independent agent channel as the favored conduit for the sale of life insurance and annuities in the eyes of insurance companies, according to a new report.

The insurance broker-dealer channel surpassing the independent agent segment is a sign that regulation is taking a toll on independent commission-based insurance agents.

It also indicates insurance companies are betting that young insurance sales professionals joining the ranks will be more attracted to a channel that offers more freedom in what producers can sell and allows them to charge a fee for their advice.

The new focus on the insurance broker-dealer “could make the broker segment the most popular agent type, beating out the independent agent,” wrote consultant Samantha Chow, a consultant with Aite Group and author of the report titled “Life and Annuities: Shifting to Direct-to-Consumer Channels.”

Insurance broker-dealers, who are authorized to sell mutual funds in addition to insurance and annuities don't collect an override, or commission, from insurers.

"You might as well be a broker," Chow said, echoing what young professionals joining the industry are saying.

A Possible First

Asked if this is the first time insurance broker-dealers were expected to overtake the independent agent segment, “I cannot confirm that, but I speculate it is so,” Chow said.

Chow’s research, based on interviews with 18 life and annuity insurance companies, found that all the companies sold life and annuity products through five different channels: independent agents, broker-dealers, investment advisors, career or captive agents and multi-line exclusive agents.

Half of the insurance companies reported that they offer the independent agent channel for distribution and half of the companies also reported that they use an insurance broker-dealer for life and annuity distribution.

In two years, however, an estimated 61 percent of the insurance companies report they intend to use the insurance broker-dealer to distribute life and annuity products, tipping that balance firmly toward brokers for the first time.

“People are expanding into the broker channel,” Chow said.

New fiduciary rules by the U.S. Department of Labor raising investment advice standards for the sale of financial services products into retirement accounts are widely seen as burdensome for independent insurance agents.

Initial clauses of the rule kick in April 10, 2017, but many industry experts note that distributors will likely be compliant as early as the end of the year since the renewal of insurance products coincide with calendar year-end cycles.

D2C Segments to Chalk up Gains

Chow, a former employee with insurance giants New York Life and Aflac, said the other growth areas expected over the next two years will come from segments within the direct-to-consumer, or D2C, channel.

Direct response television, or DRTV, currently the most underutilized segment within the D2C channel, the report found. It is expected to grow by 22 percent by 2018 as companies fight for brand recognition using television’s broad reach.

DRTV will be followed by the online lead generation segment, which is expected to grow 11 percent, followed by the online direct segment, which is forecast to grow by 6 percent, the report found.

DRTV is a sale initiative through a TV commercial and closed over the phone or via mail without any commission.

Online lead generation provides lead information to the insurer or agent from email or online banner advertising, but the lead may or may not result in a commission.

An online direct sale is simply an internet transaction with no commission.

The D2C channel is used by 97 percent of the insurance companies studied in the report while the agency channel by 85 percent of companies studied in the report.

But the growth among segments of the D2C channel, unlike the agency channel, has been driven by the do-it-yourself movement to which insurance companies are responding by reaching consumers in different ways, Chow said.

In 2014, life and annuity insurers collected $138 billion in life insurance premiums and $361 billion in annuity premiums, according to the latest available industry data.

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

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].