Wednesday, September 2, 2009

(No.49) Executive ignorance,arrogance & self-interest

In a recent column ( No. 46) I referred to those I call the financial services 'paparazzi' in the rating agencies, the securities firms and financial journalism and their mainly unimpressive progress at producing useful and informed insights into the life insurance business. I went on to discuss (Nos. 47 & 48) the tendency to swallow whole the misleading spin put by the banks themselves on the subject of banks selling life insurance.

In fairness it must be noted that many, perhaps a majority of senior life insurance executives have as flawed an understanding of banks selling individual life insurance and indeed of the reality of agency distribution in its several forms as many in the financial services paparazzi -- and with far less excuse.

What is too often missed or ignored among those in both groups is the fact that 'selling stuff' successfully is what the business is about. Again and again I watched lousy distribution system decisions in companies for which I worked (Mutual Life, Clarica Life, Sun Life) as well as in other life insurance companies into which I maintained good sight lines as an industry insider and former journalist -- decisions made for uninformed, misinformed or career management reasons.

It often seemed to me as if it was thought that 'selling stuff' was somehow only marginally relevant to the conduct of a prosperous life insurance business. The fact is that the decline of the active (i.e., prospecting and selling) agency system in its variations in North America owes much to the ignorance, arrogance and self-interest of many among senior life insurance company executives especially those unburdened by agency knowledge or experience.

Whether speaking to insurance studies students at the University of Alabama or to a life company's board of directors, based on my experience in the business my message refers to refer to important realities of the life insurance business. Selling and distribution are a cornerstone of the business yet one apparently invisible to many executives who should know better. In terms of meeting the needs of agency distribution, the foundation on which the individual business continues to sit, the sales results within too many lfe insurance companies have been analogous to the educational outcomes one could expect if one had illiterates direct the teaching of English composition.

For the bulk of the Canadian life insurance business success in the actual selling of profitable individual insurance products in appropriate quantities is not at root about such evergreen senior management favourites as:

-- the junk science results derived from focus groups, or
-- the hiring of consultants who know even less about agency distribution than the company executives handing them fat contracts, or
-- call centres the sales value of which in the larger sense is marginal at best and now even less than formerly because of the 'do-not-call list' regime, or
-- big spending on brand awareness ( London Life, a company uniquely well known to the public for its longtime Freedom 55 advertising slogan still requires a fine sales force of 2000+ licensed people to sell its products), or
-- filigree work on nothing such as trendy head office "marketing" prattle masquerading as retail strategy about building 'holistic relationships' with would-be clients,
-- nor is it even about pretending that there isn't a straight line connecting this core product to death and its financial implications (a reality which in turn requires involvement by a selling agent or broker to make it into something for the company).

I conclude this screed by citing another characteristic shared by too many among both financial services paparazzi and life insurance company executives: when it comes to distribution issues and agency system problems there is too often a tendency to focus not on causes but on symptoms. Indeed it is not uncommon for senior management teams to fixate on unrealistic company sales goals, unrealistic because these same teams have been studiously ignoring or denying the centrality to sales difficulties of inadequate company investment in the support and enhancement of the distribution systems on which the increasing of sales depends.

And finally let us not omit a core industry problem: the real but publicly unacknowledged and far too widely held executive belief that a company can have a superior distribution system for the price of an inferior one.

Alastair Rickard