Creating economic value from distribution has never been more difficult for life insurers trying to increase business and reduce costs. Balancing the complexities inherent in a competitive marketplace, more than 1,000 U.S. companies currently offering a host of life and annuity products are in a scramble to hold on to representatives from traditional channels and acquire those from nontraditional channels.In the face of a growing market (Baby Boomers looking at retirement strategies now count 77 million), Internet-based customer self-service and a host of alternative distribution channels, keeping traditional, dedicated life insurance sellers on board is no easy task. The number of career life agents dropped to 178,000 in 2000 compared to 238,000 a decade ago, reports TowerGroup, a Needham, Mass., research and advisory firm.

Life insurers trying to offset this declining population are hoping to penetrate other channels, such as third-party marketers, financial planners, direct mail, banks and warehouses.

"To be successful, life insurers must compete with other financial services institutions (FSIs) and must also increase life insurance product distribution beyond traditional agents to expand their reach to investors at all levels of affluence," points out Cynthia Saccocia, research director, insurance, at TowerGroup. "This is because insurers also play a role as a product manufacturer in partnership with other FSIs who sell insurance products to their customers."

Reaching new advisors requires a commitment by the carrier to increase sales through nontraditional retail distribution outlets, Saccocia confirms. But adding to the thorny mix are the operational requirements needed to support and optimize channel growth (see "Life Insurance Retail Distribution Sales Network," page 15).

"Each distributor offers distinct opportunities for carriers to increase sales; however, from the carrier's perspective it involves the networking of insurance specialists to reach and support various retail distribution outlets," says Saccocia. "A carrier's operational complexities increase with the addition of each new distributor to its network."

Complexities include sales training, assistance, compensation, and operations and technology support, all of which drive up costs.

Richard Berry, principal with the Tillinghast division of Towers Perrin, New York, says for this reason, distribution is often considered the largest cost in the retail life business. "As a general rule, if you take 100% of the expenses of running the company, two-thirds of that goes to supporting the sales effort, and one-half of that goes to field expense," he says. "The other one-third goes to home-office administration, including technology. Technology is a great enabler for creating economic value for that."

Saccocia agrees. "Technology must be at the forefront of any insurer's plans to streamline and simplify insurance sales and operations," she says.

Is technology a priority?

And the stakes are high. Life insurance CFOs surveyed by Tillinghast-Towers Perrin identified distribution effectiveness and efficiency as one of the top three challenges to achieving their companies' growth and profit objectives in 2005.

In spite of agreement about IT being the primary way to manage costs, however, a recent TowerGroup survey confirmed that only 17% of life insurers' IT budgets are dedicated to distribution. For some insurers, it may be a matter of leveraging existing legacy systems to accommodate various distribution initiatives, thereby skewing the number, notes Saccocia.

"For others, it's a matter of the types of products being sold and the technology requirements needed to support those products. For example, wealth management and financial planning require different approaches; some are very personalized, and because it's not a must-have for the policyholder, it's less transactional in nature."

Buyer's remorse

The downside to this type of product-buyer's remorse-makes the case for speed to market technology critical.

"Annuities fill a need in a portfolio," says Saccocia. "But if you can't close life business quickly, you run a greater risk of having the end customers change their minds about wanting it."

Few would argue that once the buy decision is made, the ability to move the application quickly and successfully-from underwriting to policy issuance-is critical.

Speed to market is an understatement for carriers of all sizes trying to penetrate new channels with new products. For many, speed represents an Internet strategy.

By the time parent company Inviva Inc., was formed, Jefferson National Life Insurance Co. had specialized in life insurance and long-term investment products for more than 60 years. According to Inviva CEO and Jefferson National president Laurence Greenberg, the Dallas company-one of two acquired by Inviva in 2001-was considered a "start-up."

"We started in 2001 with an open field," he says. "You have to have enormous scale to justify the costs of managing life insurance, but we found a way to be able to compete at a fraction of the volume because we took the company to an automated Web-services-based platform."

Citing an industry average of 40 days, Greenberg claims Jefferson National's platform helps process and bind simplified life policies in 10 minutes. "Because it doesn't require a medical exam, we avoid the bulk of case management costs and can streamline issuance."

With 75% of the company's incoming sales the result of direct marketing, its 13,000 affiliated agents support a core audience of approximately 2,000 dedicated agents, 75% of whom use electronic processing exclusively to communicate with Jefferson National.

TowerGroup's Saccocia says this type of approach is significant. "Automation in the field-i.e., leveraging technology to push sales and marketing to the field without a lot of manual intervention-along with new ways of selling products, such as simplified forms, differentiates carriers in a highly competitive market," she says.

Jump in sales

A relational database captures the data forwarded by either a Jefferson National agent or the applicant via the Internet and feeds it into actuarial and accounting systems to simplify reporting. The company's core policy administration system, which was tweaked from its original footprint, sends a copy of the policy to the insured, and once bound, stores a copy in an image repository.

The policyholder reads the e-mailed document, clicks on an e-signature, a third-party bureau tags it-and follow up with medical information bureaus and pharmaceutical databases confirms policyholder data in real time. The carrier requires all payments in either credit card or e-check.

Jefferson National, which uses the same Web services strategy to sell annuities, has already sold 21,000 simplified life policies this year, a jump in sales from 4,000 in 2001.

The ability to drive more life business out of nontraditional channels, such as the Internet, requires some creativity, Saccocia says, and ultimately helps the carrier reduce costs. "Leveraging the pipes that connect large agencies with the major carriers means work and information-sharing is possible, and it fortifies the distribution network."

George Foulke, vice president of individual business technology at New York-based Metropolitan Life Insurance Co. (MetLife), agrees. Having the ability to provide Web services helps his company save money by cutting application development time.

But the value of Web services, according to Foulke, lies in the fact that the company can quickly and effectively sell insurance through new distribution channels, which helps to increase revenue.

Up and running

For example, MetLife sells its insurance products through both affiliated and independent brokers. In addition, the company sells products through large employers and currently does business through 87 of the Fortune 100 companies. With Web services, the company can get a new broker or employer up and running in a matter of weeks, as opposed to the months it would take to develop a proprietary connection.

"There is great value from a revenue perspective in our ability to attract new distribution entities," Foulke says. "We already have the pipes built-and can have distributors up and running in no time."

Carriers enticing broker-dealers with enhanced tools, such as tablet PCs, wireless connectivity, and enhancements with the Depository Trust & Clearing Corp. (a clearinghouse for dropping e-tickets) have their eye on growing both sides of the business.

"This kind of strategy contains an element of customer relationship management," notes Saccocia, "and serves to improve relationships with both the distribution network and the consumer.

When Jackson National Life Insurance Co., Lansing Mich., began working with National Planning Holdings Inc. (NPH), its Santa Monica, Calif.-based broker-dealer holding company, to create an "advice-based" wholesaling model, it did so with the carrier, distribution network and consumer in mind.

The model, in which information is made available to help advisers design client-appropriate retirement solutions and close the sale quickly, has paid off. The carrier, acquired by Prudential in 1986 and currently holding more than 1.5 million policies and contracts in force, saw a 17% increase over the last year in variable annuity, fixed index annuities and institutional life product sales.

A key element of its model is its e-signature technology, notes NPH president Shawn Dreffein. "The technology platform is one of the main reasons representatives choose to join our team, and an example of our commitment to developing secure tools that allow representatives to spend more time in front of their clients and ultimately, focus on meeting their clients' financial needs."

As part of a larger distribution technology initiative, the carrier's sales figures are complemented by its reduction in costs. Jackson National reports a 66% decline in deficient paperwork for missing broker/dealer compliance forms, a 100% reduction in deficient paperwork for missing data elements on compliance-required forms, and a 23% decrease in staff (compliance, commission, new business, administration, mailroom, scanning) required for handling/processing paperwork.

"It's a significant milestone because the administrative time that representatives once needed to print client account documentation, have the paperwork signed by their clients, and routing for supervisor review and approval has now been eliminated," said Dreffein.


As other distribution channels emerge as viable alternatives to traditional selling, carriers must weigh the costs of training, especially with third-party brokers.

"Our goal is to help the producer become the financial management expert, keep him out of the business of asking intimate questions, and in the business of completing the transaction," says Ann Kelly Jones, assistant vice president, new business, at The Hartford's individual life division, Hartford, Conn.

As The Hartford's distribution channels have expanded, so has its complexity. "We needed to do something to tap this market," says Kelly Jones, "so approximately five years ago we developed Tele-link, a tele-underwriting system."

The tele-underwriting system includes a pre-application process that enables the financial planner, broker/producer, bank representative or insurance agent to meet with the client, discuss their financial needs, and feed basic data (name, address, phone, coverage) on a simple ticket routed electronically, by mail, or by fax back to The Hartford's call center in Minneapolis.

The Hartford's tele-underwriters (many of whom have medical backgrounds), call the policyholder; intuitive software prompts reflexive questioning to determine if further medical information is required. based on the answers received.

"From a customer experience standpoint, it's more streamlined," says Kelly Jones. "Only specimens are collected as part of the process; no duplicate questions are asked."

An automated back-end workflow distribution system translates files from paper to image, and the Tele-link system enables anyone in new business or underwriting to access a file within seconds. The system enables multiple individuals to work on a case at the same time-another time-saver.

"We didn't have a contact center for brokers to call when we had paper," notes Kelly Jones. "So we developed a 1-800 call center and a way to auto-prioritize the most important work. This allows us to do market segmentation, such as the broker/dealers who may have a high profile set of producers they provide special services to. We know who they are and their business has higher priority."

The Hartford's system cranks out paperwork on the back-end that uses more generic, less insurance-specific language to make it easy for producers to explain the terms of insurance to the clients.

Kelly Jones says The Hartford's broad range of products (variable, whole, universal, and term) and customers makes it difficult to provide across-the-board lead times from first visit to delivery of the policy. But she confirmed the carrier's simplified-issue products can be turned around in a couple of days. "Some take longer. An average might be 20 to 25 days to be fully underwritten."

Kelly Jones believes technology makes it possible for The Hartford to hang its hat on quality assurance and continuous improvement.

"We know what is being sold to the client is the appropriate coverage, it's accurate and complete, and that the relationship between the seller and buyer has a positive future," says Kelly Jones.

To measure success, the carrier sends a survey to the broker with each piece of new business.

"This year, our ratings have come in greater than 95% year-to-date," concludes Kelly Jones.

John McCormack, a freelance writer based in Riverside, Ill., contributed to this article.

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