The Power of One
One of the hoariest maxims of insurance distribution is that product is sold, not bought. But the pressing question today is exactly how to sell it. Increasingly, the answer is through multiple channels. Captive agents continue to be an important channel, but developing complementary business with third-party producers has become a critical goal for many carriers. According to a recent report from Deloitte ("Distribution Challenges in the Life Insurance Industry," 2004), independent producers now write about 50 percent of all life insurance policies; and 67 percent of respondents to a survey conducted by Deloitte said that independents would be their most important channel within the next three years. Providing adaptable and flexible communications channels is essential to luring and retaining independent agents and other third-party distributors. And key to doing that cost-effectively is building an infrastructure that can rapidly and effectively adapt to the requirements of new channels.
Of course, it's still possible to succeed with an exclusively captive distribution channel. Consider Northwestern Mutual, suggests John Johnsen of research and consulting firm TCi (Cresskill, N.J.). Northwestern Mutual takes very good care of its agents and, in turn, expects its agents to nurture its policyholders. The carrier's approach results in high rates of both retention and persistency. Perhaps the friendly ethos of the Midwest aids the carrier's success, Johnsen speculates, but Northwestern's way of doing business "is almost a dying model in the industry," he relates.
Johnsen speculates that within a decade captive agents will be a pretty rare phenomenon. "You almost can't afford to keep a captive," he explains. "You need to supply them with office space, administrative support, computers and phones - and the best ones tend to leave and go work for a third-party distributor," he continues.
Of course, new distribution channels are expensive, too. As third-party distribution channels have grown increasingly important, they are in a position to shop for the best information and transaction capabilities. The cost of application development as a percentage of IT budgets was 22.8 percent in 1999, according to research by TCi. By 2002, that figure had risen to 38.6 percent.
Service Is Key
The latter figure reflects a reality wherein, "Everybody is chasing all the third-party distributors and giving them what they want - the producers are in the driver's seat," Johnsen asserts. "Service is the most important factor in third-party distributors being willing to sell an insurer's product," he adds.
Among the factors that constitute good service are the ability for producers to get information 24/7 about clients' in-force policies and applications being processed, as well as pending business reports, commission statements and production information, according to Johnsen. "Carriers need to provide access to this kind of information so that producers can get what they need at any time, and from any place," he says.
Insurers also need to be able to provide third-party distributors with the electronic information feeds that enable them to prepare aggregated commission statements for their producers. Carriers must also have flexible compensation systems that permit quick entry of any compensation hierarchy structure, Johnsen insists. In short, "Systems and back-office processing must accommodate third-party distributors' needs from the point-of-sale through issue, administration and claim processing," he says. "Otherwise, carriers will not be able to attract third-party distributors."
In order to be able to deliver those capabilities without breaking the bank, carriers would do well to build technology capabilities once, with a view to leveraging them over multiple distribution channels, counsels Dennis Noice, CIO of Nationwide Financial Services, a subsidiary of Nationwide (NFS; Columbus, Ohio; $148 billion in assets). The name of the game, according to Noice, is to get information where it needs to be, when it needs to be, in a form that's usable by the producer, as well as internal employees and end-customers. To achieve that goal, the carrier has developed a data strategy whereby it is "attempting to develop an infrastructure that facilitates getting information without having to develop multiple structures and multiple facilities," Noice explains.
NFS' independent channels include independent financial planners, wirehouses, regional broker-dealers, pension professionals and financial institutions, including banks, credit unions and savings and loans. "We send more than 800 data feeds on a daily or weekly basis to our various business partners," Noice says.
Most of NFS' producers tap into the carrier's online Sales and Service Center, which is built on a unified Internet and voice infrastructure. "In the mid-'90s, we had the foresight to build a single Internet infrastructure and voice infrastructure to accommodate all of our products and all of our channels," Noice says. "When someone logs in, based on who they are and what channel they relate to, we paint them a different picture [of NFS] and provide them different information." Through that infrastructure, NFS provides producers with tools to gain access to all the relationships they have with the Nationwide enterprise, both on a product and customer basis, and it allows for a view of their collective results across all product sets.
Anthony O'Donnell has covered technology in the insurance industry since 2000, when he joined the editorial staff of Insurance & Technology. As an editor and reporter for I&T and the InformationWeek Financial Services of TechWeb he has written on all areas of information ... View Full Bio
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