The stunning announcement on August 5th of The Washington Post's acquisition by Amazon.com Founder and CEO Jeffrey Bezos could be a harbinger of big things to come — and not only for failing newspapers.
The buyout could also portend a revolution, potentially led by Amazon and other technology titans, in the distribution of products across a range of industries, among them professional services like insurance and financial planning. For career and independent producers, the $64,000 question is whether they'll have a place in this new paradigm.
Near-term, I would say. But peer into a crystal ball a decade or so out and the prospect of licensed call center agents replacing field producers in the marketing and sale of life insurance products — most especially term life products — seems disconcertingly real.
Currently, the web is chock full of sites, many run by carriers, others by third-party aggregators, where consumers can get policy quotes. According to market research firm LIMRA, about one in five life insurance policies sold originates through a direct sales channel.
To my knowledge, however, most of these portals are simply lead-generation sites that pay the agent facilitating the policy application and sale a standard “heaped” or up-front commission. As a result, the policy premium is the same whether an applicant buys “direct” or through a face-to-face meeting with an agent, as the ladder’s commission on the sale is built into the price.
Why haven't insurers who have direct sales portals dispensed with this compensation structure? Presumably, substituting levelized or trailing commissions for the traditional payout method would be to their advantage, as they could boost sales and their products’ internal rate of return and, thus, the price to the consumer.
Much to the relief of producers, however, insurers have maintained the status quo. The key reason: A truly direct sales channel offering lower priced products would engender channel conflict. The more product they push through direct sales, the more they would cannibalize the sales of affiliated agents and brokers — the very people they now depend on for their revenues. And, clearly, alienating a company’s field sales force is not something that most insurers wish to contemplate.
Onward march of technology
Like it or not, however, change is afoot. One who is pushing the distribution envelope is Herbert Katz, president of Quest Excel Inc., a New Jersey-based independent market organization. In a phone interview, Katz told me he sees great promise for direct sales of products at reduced prices in an increasingly underserved space: the middle market for low-cost term life sales.
To appeal to midmarket prospects, Katz proposes to follow the Progressive model for marketing auto insurance: Applicants name their price and an automated risk underwriting system will find a policy to match. If a guaranteed issue contract that doesn’t mandate a medical exam or health history can’t be sold, then the system would substitute (for the same price) a simplified issue policy requiring medical information, though potentially with a lower face amount.
Sounds like a plan. But Katz has yet to realize his vision because of an aforementioned stumbling block: Major life insurers who don’t want to undercut their producers by issuing new, more competitively priced products for a direct sales channel. Katz says he’s in talks with other potential partners, including an unnamed European insurer that may want to establish a toehold in the U.S. market.
Enter the behemoths
Whether or not Katz succeeds, other players are undoubtedly also looking to cut out the traditionally compensated field producer and offer product at more steeply discounted prices. I’m betting they include Silicon Valley giants who, given their technological prowess, brand recognition and financial might, could crush any would-be competitor in their path.
Picture this scenario: You go to Amazon’s web site to order a buyer’s guide on life insurance. After adding the requested book to your shopping cart, Amazon displays similar titles for your review—plus a chat box to connect you with an insurance-licensed call center rep who, using an automated underwriting process à la Katz, could sell you a bargain-basement policy from an allied insurance company hassle-free.
Sound like a stretch? It doesn’t to me. And unless the insurance industry figures out a better way to serve middle market consumers (two-thirds of whom, LIMRA estimates, have no life insurance) then tech titans like Amazon, Google and Apple might be tempted to fill the void. For field producers long-accustomed to having the market to themselves, that can’t be a good thing.