NAILBA Perspectives Perspectives Summer 2018 - Page 7

C ompared to other types of insurance businesses, bro- kerage is a relatively new industry. It came into being less than 40 years ago. Before then, consumers purchased life insurance through an agent who represented just one carrier. If that carrier did not offer policies appropriate for that consumer, the consumer would have to contact another dedicated agent who handled a different car- rier’s policies. Once brokerage began, individ- ual local agents could offer easy convenience in finding policies for virtually every potential policy- holder. That’s because those agents work with brokerage general agents (BGAs) who represent multiple carri- ers. BGAs use the case information gathered by producers to find the best policy for each person’s situ- ation by looking at products from several carriers. What would happen now if bro- kerage ceased to exist? How would people buy life insurance? Let’s see what some industry experts have to say. Limited choices and increased marketing costs “I can’t imagine a scenario where brokerage would cease to exist,” said Butch Britton, retired CEO of ING (now Voya) U.S.’s Insurance Solutions and past Mooers Award recipient. “But if it did, the choice offered by brokerage distribution would cease to exist for clients and they most likely would be limited in choices for their insurance solu- tions. They could not be sure they received the best solution for their insurance needs. The choice as pro- vided by brokers’ distribution is very viable.” “Although many outlets have tried to direct clients/consumers to more transaction types of products and online solutions, many life insur- ance policies still need to be ‘sold,” Colleen Horner, VP, National Ac- counts, BGA Distribution at Nation- wide pointed out. “The brokerage environment offers producers many products and services, allowing the producer to provide unbiased solu- tions based on consumer needs.” She sees one key advantage of the brokerage marketplace is its ability to provide many solutions from var- ious carriers. Britton suggests without broker- age, insurance companies would have to sell life insurance policies through some form of career agent distribution or multi-tiered market- ing organizations. He said these groups currently sell fairly unat- tractively priced products. Another alternative would be Personal Producing General Agents (PPGA). Large numbers of them would be needed. “In that case, insurance companies would have hundreds of points of contact with agents rather than one contact with a BGA,” Britton said. “Companies would have to beef up their internal marketing staffs significantly to fill the marketing void left by the ab- sent BGAs. Carriers would have to work hard to recruit large numbers of PPGAs to distribute their prod- ucts. It would be difficult for a pro- ducer to become a PPGA having suf- ficient companies to provide choice. This would mean fewer choices for clients to fit their insurance needs. Impaired risk insurance would be much harder to place without the shopping capability of the BGA.” In this non-BGA world, producers would have to rely on carriers to pro- vide information on their products, Horner pointed out. “This would be a much more cumbersome process than the brokerage system in which they can get basically everything they need with regard to products and solutions from a single source: a BGA,” she said. In her opinion, there is not any other single source capable of replacing what BGAs do. While some broker/dealers, wires, and banks provide similar services, she said most are supported, at least partly, by BGAs. “A producer/ customer would have to go to mul- tiple sources, including the carriers, to get what they need in the way of product, solution, information, and options,” she noted. “It would be a very disjointed approach.” Horner admits a private insur- ance counselor or someone like that could provide information and policy options similar to what BGAs provide. “However, the breakdown would come once the solution is de- termined -- how do they execute?” she wondered. “What carriers would be equipped and prepared to handle this type of approach? Determining the policy solution is only part of the process. Execution is key once the solution is identified. The BGA offers a beginning to end process.” Could technology fill in? BGAs use technology now in serving clients. Maybe technology could be an answer if brokerage went away. Without brokerage, “carriers would have to rely more on direct solu- tions utilizing technology and/or al- ternate forms of distribution,” said Horner. “The challenge with this is being able to get their value prop- osition, products, and solutions to be shown in the best light consis- tently. In addition, the many alter- nate forms of distribution that exist currently utilize brokerage in some capacity.” This suggests technology could not be a complete substitute. “Technology provides three valu- able assets for BGAs: front office solutions to their distribution, back office solutions including an agen- cy management system and other tools, and the connectivity to all their training partners like carriers and service providers,” explained Ken Leibow, Head of Distribution Technology and Strategy/Procure- ment at Global Bankers Insurance Group. Programs like these are not accessible to the public. “When dealing with 20 carriers, 100 different products, and thou- sands of agents, it’s not possible to provide fast and efficient service without technology,” he said. “From agency management systems to e-applications, product brochures, email campaigns, and leveraging ed- ucational and other materials from carrier websites, technology is a crucial resource for BGAs.” Leibow said some aspects of the insurance sales process could be done by using artificial intelligence. This would require customers to an- swer detailed questionnaires. Their answers would be curated and com- pared with different policies using algorithms based on an aggregate of similar cases to find appropriate policies. He cautions a system like this would lack the needed sophisti- cation and human judgement to find the best match between customer and policy. “While technology can be leveraged for predictive under- writing, the underwriter has to make a judgement call after getting the scores back and then decide whether to take on that risk,” he said. Another problem with using an online interview system is human fatigue. Now, when producers do telephone interviews with prospects to ask about their medical condi- tions, after 30 minutes there is a huge drop off in responses, Leibow said. “An online application form would need to be simple and quick “The brokerage environment offers producers many products and services, allowing the producer to provide unbiased solutions based on consumer needs,” said Colleen Horner, VP, National Accounts, BGA Distribution at Nationwide. 7