Tuesday, March 3, 2009

(No.18) MORE about the Industry's Mental Health

Continuing my contribution to the life insurance industry's mental health begun in the previous post (the 17th) to the RickardsRead blog:

-- Too many members of life insurance company senior managements still fail to understand -- or resist acknowledging for fear of impaling themselves and their grand planning on an unwelcome reality -- that agents' and brokers' steadily increasing focus on asset or wealth product sales reduces the life insurance sales which they would on average otherwise be making.

One sale, the asset product that many people actually want to buy, is easier while the other (life insurance) is the harder one; this is not rocket science but it appears to mystify those executives who seem to believe that companies can attempt to load up active sellers of insurance like a tinker's mule with a range of financial products and expect them to be sold with equal vigour and resolve. In that direction lies agency distribution cloud-cuckoo-land.

-- Because most financial journalists and rating agency analysts don't really understand the guts of the life insurance business involving (in particular) product pricing, reinsurance and distribution, there is excessive focus by them, and therefore by the companies publicly, on top line growth. For this sort of audience it seems to many to be more impressive for a life company to report that "we sold a 'zillion' dollars of life insurance last year" while avoiding any reference to what is often the 'dirty secret' that much or most of it was under-priced and over-compensated and/or priced in such a way that it will be many years before its lack of longer term profitability will become evident on the company's books. Hence it is a much more publicly appealing approach than stating frankly that "we sold only a half a 'zillion' dollars of new business but all of it will actually achieve our profitability targets over time".

-- Customer loyalty to a company (very often dependent on the client's relationship with the agent or broker) is actually more important to sales success than 'brand awareness'; organic growth by a company is often better and more profitable than growth by acquisition ( and there are endless examples of the truth of this); asking 'customers', whether a life company's sales people or the buyers of its products, what they think they 'want' will often give a company the wrong answers; and as the complexity of a product increases so will the likelihood that the product will not enjoy sales success because the sales intermediary and/or the client won't understand it.

-- If life insurance companies are forced to cut operating budgets (as distinct from, say, executive stock options) then such decreases should come first (as they too often don't) from non-operational 'corporate functions and from those staff functions which supposedly support the actual business of 'selling stuff'. These often tend to spend time and money on activity, the value and productivity of which is opaque. For example: so-called marketing support departments which waste untold amounts trying to measure (using largely useless pseudo-scientific tools like focus groups) what distribution systems need rather than listening to and then acting on what is said by agency and field people who are more aware than anyone in a company what they, as sales people, actually need in order to support the making to make greater sales and are not getting -- either at all or inadequately.

Alastair Rickard