The long-term viability of the independent life insurance distribution channel cannot merely be assumed and is far from assured.
The affluent population may always see the value provided by financial advisors and life insurance professionals to help them build and protect their wealth, but what’s to stop continually emerging technologies from capturing ever-greater shares of a vast market of middle-income consumers who are already neglected by the life insurance industry? It didn’t take long for travel agents to become obsolete despite the value they provided to consumers with their industry-specific expertise.
Whether the independent distribution channel acknowledges them or not, potentially significant threats are looming that could erode its long-dominant market share. Beyond the lingering possibility of a universal fiduciary standard being imposed that could change the commission-based compensation system that has thrived under the suitability standard, there are a variety of interconnected issues. Among them is a graying producer workforce that is not being replaced by younger agents at a sustainable level. The life insurance industry has a two-pronged image problem: consumers who need coverage are apathetic, while talented college grads show little interest in making a career of the industry. There is also the intense focus on catering to the affluent market while the middle market is disregarded, creating its own set of issues. Technology continues to change the way consumers make purchases, including life insurance. Could it be the answer for that underserved middle market? Other distribution channels — including banks — are also ramping up their efforts to sell life insurance.
Put them all together and you may sense the independent distribution channel is under attack. Whether you share that sentiment or not, it’s hard to deny the channel needs to address these threats if it is to remain the dominant life insurance distribution system.
This month, Life Insurance Selling examines challenges facing the channel and what needs to be done to answer these challenges. Our coverage begins on page 16.
And about that dominant market share? At the LIMRA Distribution Conference earlier this year, LIMRA had the independent channel pegged at 47% of new premium in individual life sales in 2011 (matching the lowest percentage since 1999). By comparison, affiliated agents grabbed 41%, and 12% went to alternative distribution, which includes direct sales to consumer, sales through financial institutions, and sales through full-service and independent broker-dealers. Back in 2007, the independent channel had a 57% market share, while the affiliated agent channel had 35%. The alternative distribution channel had only 8% then, and back in 1983, it had just 2%.
If the TSA was in charge of the channel’s safety, they’d probably have raised the “threat level” by now.