Even the thought of the proposed Department of Labor fiduciary regulations regarding commissions are adding a layer of consternation and disruption to the industry’s conventional model.
Amid what feels like a continuing tsunami of proposed changes, artificial intelligence emerges as a possible disruptive force. AI could present a “Trojan horse” of an opportunity for distributors to rethink their distribution strategies.
In light of the proposed DOL fiduciary regulations, a growing spotlight could impact overwrite and commissions. We also could see AI as a pathway for distributions to bypass the traditional reliance on licensed agents and instead directly engage with consumers.
In Part 2 of our series, we delve into the cons of how AI could reduce or even eliminate the need for licensed insurance agents. This would impact distributions, which may embrace a direct-to-consumer approach with the hopes of ushering in a new era of efficiency, cost-effectiveness and customer-centricity.
The cons of AI and direct-to-consumer for consumers
Limited personalized guidance: Consumers may miss out on the personalized advice and expertise that seasoned licensed agents provide. This could lead to potential confusion in choosing the right insurance coverage.
Complex decision-making: Life and health insurance can be intricate. Consumers might find it challenging to navigate the life or health insurance decision without professional assistance. This has the potential to result in suboptimal coverage choices.
Lack of advocacy: Agents often act as advocates for consumers, helping them during claims processes and ensuring fair treatment. Direct-to-consumer models may reduce the level of advocacy available to policyholders.
Loss of relationships: Direct interactions with distributions might lead to a loss of the personal touch and relationship-building that consumers experience with dedicated agents.
Cons for field marketing organizations
Revenue reduction: FMOs rely on commissions from insurance sales, and a shift to direct-to-consumer could lead to a significant reduction in revenue streams as carriers bypass intermediary entities.
Role redundancy: FMOs may face challenges in justifying their existence in a DTC model, as carriers might question the need for an additional layer in the distribution chain.
Business model disruption: The traditional business model of FMOs, built on commissions and relationships with agents, may become obsolete. This would require a fundamental shift in FMOs’ approach.
Cons for licensed insurance agents
Income reduction: Commissions are a primary source of income for licensed agents. A move towards direct-to-consumer could result in reduced earnings and could impact agents’ financial stability.
Job displacement: The role of licensed agents may diminish in a direct-to-consumer scenario. This could potentially lead to a decline in demand for agents’ services and, in some cases, could lead to job displacement.
Increased competition: Agents may face intensified competition from online platforms and AI-driven solutions. This will require agents to adapt and find new ways to distinguish themselves in the market.
Loss of client relationships: Agents often build long-term relationships with clients. Direct-to-consumer models may disrupt these relationships, as direct interactions between insurers and consumers become more prevalent.
In navigating this potential shift, it's crucial for stakeholders to consider how to balance the benefits of efficiency and cost reduction with the importance of personalized guidance, advocacy and maintaining a robust insurance ecosystem that serves the best interests of both consumers and industry professionals.
Lloyd Loftonis the founder ofPowerBehind the Sales. He is the author of The Saleshero’s Guide To Handling Objections, voted 1 of the 11 Best New Presentation Books To Read in 2020 by BookAuthority. Lloyd may be contacted at [email protected].