To be successful in the insurance and financial services business, you must pay attention to details while also following and understanding the trends shaping our industry. That way, when the time is right, you can take advantage of new opportunities.
It's important that, as producers, you understand how you fit into the dynamic and evolving independent distribution system, what to look for in an independent marketing organization (IMO) should you decide you want to partner with one, and how such a relationship might help you capitalize on new sales opportunities.
What troubles producers
Among the problems faced by producers across the nation are:
- Business expenses are rising faster than commissions, renewals, and bonuses.
- Companies have raised production limits so high that it's difficult to earn a decent street-level compensation.
- Given that you need to spread business around to several companies to properly serve your clients, it's difficult to produce enough to retain contracts with good companies you'd like to represent.
- Education and training -- except possibly on new product specifics -- from the companies have eroded in frequency and quality.
The recent explosive growth of IMOs can be attributed in large part to the marketplace's need to respond to all of those concerns from insurance producers. In general, the goals of all IMOs are simple:
- To offer innovative products from leading companies with stellar ratings.
- To seek new market niches and develop new marketing programs so producers can
- To compete fairly for available business.
- To grow and thrive as a quality, values-driven organization offering pride to associates and producers alike.
- To be profitable in all marketing activities.
Drivers for accelerated growth
There have been main driving forces for the accelerated growth of IMOs over the past decade, and particularly in the new millennium. Here's a brief discussion of the causes and the resulting effects.
- Rating agencies become more important. After the tumult over several major insolvencies in the early 1990s, increasing attention was devoted to market conduct lawsuits in the late 1990s. And with consumerism at an all-time high, financial ratings became much more important to the sale of insurance products. Rating agencies were quick to understand their influence, and they now pressure companies to grow and be profitable in order to maintain their high ratings. Profitability has dominated insurance company thinking at the same time that profit margins on products have become smaller, in the context of a broadened and more competitive financial services arena.
Results: Distribution and some marketing costs were passed along to the field. Consequently, distributors now scramble to grow and be profitable, just as life insurance companies are doing by seeking many more producers and mergers and acquisition partners.
- Manufacturing companies court larger entities. Since it costs too much to build, maintain, and control distribution, many manufacturing companies have raised the production bar very high so as to effectively drive away the smaller producers. This encourages them to align themselves with larger marketing entities. Companies themselves want to partner primarily with operations such as IMOs, which are willing to shoulder the marketing and training expenses and to supply the energy to build out distribution. Again, if you're a producer with a great relationship with a primary company, cherish it. But while your situation was the norm as recently as five to eight years ago, it appears less so today.
Results: Financial considerations of the manufacturers have led them to partner with large organizations, thus spurring on the continued evolution of super IMOs.
- Product complexity. It's time-consuming for you to master knowledge of all of the best products. Any company can re-engineer any other company's product these days, and it can get the "latest and greatest" product to the street reasonably quickly. Consequently, competitive edges and product shelf lives are short-lived. You could spend an inordinate amount of time just learning the nuances of today's complex products, but that wouldn't leave you much time for selling or running your business. It's difficult enough staying current on tax laws and advanced sales techniques.
Results: IMOs have become the back-room technicians on product. They hire people as dedicated staff to become product and competition gurus. When you have a case, you only have to ask them for the five best companies by rating, product performance, features, and industry-leading benefits, and they'll offer solutions for you that might have taken you an entire day to compile.
- Product profitability. Profit margins are thin. Product development and marketing acquisition costs (commissions and underwriting) for the first several years are relatively high. A profit stream may take three to five years to develop, and even more years to recoup the acquisition expenses. By that time, in these days of rapid product turnover, the sales of a particular product have probably tapered off to a trickle in favor of the "next best thing."
Results: Companies are discouraging small sales. On a relative basis, they're too costly. Under the proverbial 80-20 rule, 80 percent of the premium comes from 20 percent of the agents. Increasingly, many agents cannot maximize the compensation under their contracts because they don't sell enough business.
Crystal ball gazing
In insurance product distribution, it seems like we have gone full circle -- from career agency domination up until the 1980s, to independent agent domination through the 1990s, to IMO domination in the first decade of the new millennium. According to figures from LIMRA International, recruiting is down significantly in the career distribution system. It's not too rash to say that IMOs are becoming the new career shops, minus the inexperienced agents.
Competitive market pressures on agents, companies, and distributors are likely to drive increased marketing organization mergers and more complex partnerships with manufacturing companies. As IMOs reach optimal size from the companies' point of view, their leverage with manufacturing companies will increase.
Thus, you can also expect to see more specialty/proprietary product partnerships between large distributors and companies -- the continued development of specialty market niches and expertise. Certainly, in order to compete favorably, IMOs will continue to grow their staff of sales and marketing people, underwriting, customer service, back office technicians, and trainers. Additionally, they'll implement new marketing programs and lead programs that will pay off in rapid, increased production. That can all be good news for you as a producer.
Scott Tietz is CEO of Partners Advantage Insurance Services. He can be reached at stietz@partnersadvantage.com.
