Asset-Map Life Insurance Field Distribution Study 2020: Overview
Introduction
Recent pressures including COVID-19, the “Best Interest” standards, and low-interest rates are having dramatic and possibly sustained impacts on the distribution of life insurance, annuities, investment and related solutions. Additionally, demographic changes such as boomer retirement, the demand for advice-led engagements, the shift to remote/virtual meetings, and market volatility concerns are creating new business opportunities. Responding effectively to these rapidly shifting market influences requires knowledge of social and economic forces at work, shifting consumer demands, and an informed understanding of the market landscape and competitive forces.
This market study was designed to help life insurance companies and carrier-owned broker-dealers navigate and overcome field force structural and technological challenges in response to these recent pressures and market influences. The study incorporates responses from 24 executives and leaders to 45 unique questions across the following categories:
Organizational Structure
Revenue & Growth
Field Force Distribution
Goals & Objectives
Information Technology Initiatives
This study was jointly sponsored by Asset-Map Holdings, Inc., the award-winning financial planning and household visualization technology, in partnership with RGAX, the transformation engine of Reinsurance Group of America. The individual responses of this study have been deidentified and aggregated to respect the privacy of the respondents and to provide the collective life insurance distribution community with insights into trends related to the industry.
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Methodology
The survey targeted executives and leaders in US-based insurance companies and distributors, who are directly involved in assessing the impact of recent pressures on their distribution teams (termed Representatives or Reps). Responses to the survey were collected between July 1, 2020, and September 30, 2020. Twenty-four (24) firms were presented with 45 unique queries on a range of subjects. Ninety-two percent (92%) of respondents were interviewed live and eight percent (8%) digitally.
Data was collected in standardized forms, with additional non-standardized responses and measurements normalized to build a cohesive framework for assessing and displaying the data in aggregate form. In the presentation of findings, attempts were made to communicate the ranges of responses as well as an average (or median where appropriate). The results identify recent trends, changes to business practices, and company reactions to disruptive events.
Answers by executives that were indicated as ‘not confident’, or where the participant chose not to respond, were excluded thereby reducing the denominator for calculation of averages. The identity of respondents has not been shared, as part of the study's privacy protocols.
Key Findings (Benchmark Study)
Life insurance companies continue to expand their product offerings beyond traditional life coverage into the investment, annuity, and LTC/DI markets, with the aim to grow their available product set and to serve an ever-increasing customer desire for digital engagement leading with financial advice.
While 83% of the respondent companies identified as “career agencies,” to keep up with the pressures from independent agent outlets, half of them have provided affiliation outlets to accommodate reps in the wealth management, independent, and/or hybrid channels.
The life insurance companies participating in this study indicated a continued significant financial commitment to developing and recruiting human advisors, despite reporting an average 4-year rep turnover of 63% and average costs to develop a single rep over four years of $179,000.
The average number of orphaned clients reported, as a result of rep turnover, at 329,000, represents a significant undercapitalized opportunity for most companies to re-engage digitally and cross-sell additional products/solutions.
Representative retention, client retention and cross-selling into existing client relationships ranked as the top priorities among respondent companies.
While respondents reported short-term reductions in 2020 revenue and year-end projections, as the result of the COVID-19 pandemic, over 60% of respondents indicated that new business was increasing over the 90-days prior to their survey participation (in Summer 2020) and respondents resoundingly projected positive revenue growth for 2021.
Companies that had an existing digital engagement capability in place prior to 2020 seem to have managed to retain sales momentum better than peers dependent on more traditional in-person engagement.
When asked to rate their own firm's virtual client engagement process, a full 87% indicated it was average to good. Despite that self-rating, 100% of the respondents indicated that they have plans to improve their client engagement experience. When asked how they will improve engagement strategies, 100% reported that they will be using a combination of new technology solutions and training.
When asked what innovations they saw as critical to their field distribution success, most participants listed ‘advice-led sales’ effectuated through either financial planning or providing a ‘holistic view’ of the end consumer.
When asked what innovation initiatives they plan to implement over the next two years the highest percentage of respondents, 82% cited client engagement solutions.
Key Findings (White Paper)
All companies that participated in the survey listed life insurance as their core product offering, with 100% reporting in the business of term and/or permanent life insurance. Additional commonalities of business lines included annuities *84%) and securities (53%) with less than a third reporting additional lines of business including disability, long-term care, and employee benefits [Fig. 1]. Increasing life insurance sales was the goal of three-quarters of the population and there is an indication that additional lines of businesses and solution outlets will be getting attention for priority moving forward [Fig 2]. This indication supports the trend that multi-line distribution for wealth management companies will continue to expand.
There was a significant size difference between the distribution field forces of the respondents, as measured by stepped categories for the number of representatives (hereafter “reps”), ranging from under-500 to greater-than-5,000 [Fig 3]. The average firm size was found in the 2,000 - 3,000 rep category, with an average rep age of 49 Fig 4]. Many of these firms (83%) categorized themselves as “Career Agencies”, and it was noted that many of these same typically captive organizations indicated their move towards “independent affiliation” (48%), “wealth management/broker-dealer” (48%), and or “hybrid” (43%) [Fig 5]. The findings suggest a continued migration away from the captive-only model as pressure for distribution independence and advisor branding gains in popularity amongst experienced reps. The growing “independent” movement is showing up in recruiting by the traditional career agencies that want to be an appealing destination for experienced reps seeking new affiliation. The sheer number of recruits was significant on average at 605 new recruits per year (Fig 6].
These reps were recruited predominantly for internal development (and partially from existing professionals), as respondent organizations affirmed their commitment to developing their own field force moving forward. Respondents made this commitment despite the fact that the self-reported four-year average cost to train and recruit a single rep was $179,923 [Fig 8], and the average four-year retention rate for new representatives remained consistent with industry averages at twenty-seven percent (27%), with a range from 15% to 46% [Fig 9]. These findings suggest that retention rates for new distribution field forces, along with recruitment and training costs, are critical to organizational success. Using these reported averages indicates that a hypothetical company adding 605 new recruits would commit over $29.3M in their recruiting and training efforts to develop only 163 reps after four years.
Despite the costs of recruiting and training new distribution field forces, and the low survival rate for new reps in the industry, 95% of the respondents shared a renewed commitment to developing new agents and representatives, with only 5% reporting the recruitment of only experienced hires [Fig 7]. This indicates how many new entrants to the industry come through the Insurance professional development pipeline as opposed to starting directly in the independent space. Given the inherent costs, this broad-based commitment to human-centered distribution indicates a universal belief in the expected return on this significant investment. Innovations that address retention rates alone would have a considerable impact on the overall ROI of distribution field forces for these companies.
Another finding was that despite 78% of firms surveyed reporting that they have an “orphan client reassignment program” [Fig 11], those same firms had several hundred thousand potentially unassigned or “orphaned” customers [Fig 10]. “Orphan Clients” are customers who have done business with the organization and remain a customer - despite their originating agent or representative no longer being associated with the firm. The disconnect here may be that a significant number of existing customers don't have a personal relationship with a rep within the organization. This poses a significant risk of client attrition during difficult times, or during a shift in the customer life-cycle, based on major life events or time-of-life. Although very few of the companies reported actual client attrition [Fig 17], it is unclear whether under-engaged customers sought financial guidance or advice from other financial outlets during the summer. It will be important to look at the source of new business generated at the end of 2020 and how much is attributable to existing customer cross-selling to get an idea.
The respondents in the survey included small, mid-sized, and larger companies with annual revenues from $200 million to over $20 billion [Fig 12]. The average reported annual revenue was the $1.5 - 2 billion dollars range. The average percentage of revenue growth in 2019 was 7.7% (with all companies reporting)[Fig 13]. When asked about expectations for overall revenue growth in 2020, the average projection dropped to 4.6% [Fig 14]. Interestingly, expectations of 2020 revenue growth ranged from negative 10% loss to as much as 20% growth, as some firms experienced (or perceived), major hits to revenue while others saw opportunities. Future forecasts for overall revenue in 2021 reverted back to typical expectations averaging 7.9% {Fig 15], which is a preliminary indication that the participants perceive a return to normal revenue expectations by 2021. Those companies with digital distribution capabilities shared anecdotal confidence in their expectations for less disruption to revenue than those without an established digital distribution strategy.
Upon further exploration into the specific impact from the COVID-19 pandemic, 27% of respondent firms indicated a neutral impact on revenue, while 55% indicated a decrease, and only 18% indicated an increase in revenue [Fig 16]. Only 14% of respondents indicated seeing an increase in client attrition during the COVID-19 pandemic [Fig 17]. The majority of the respondent firms who experienced indications of recovery around the end of the summer of 2020 credited their recovery to investments in, and migration to, remote and/or virtual point-of-sale strategies, speed of underwriting programs, and paperless applications. Sixty percent (60%) of the study participants started to see an increase in new business in the preceding 90 days (August 2020 and September 2020 response collections) [Fig 18].
Prior to the pandemic, respondents indicated that, on average, 6-10% of client interactions were remotely facilitated [Fig 19]. Only three of the participants indicated that more than 20% of client/rep meetings were virtual or remote prior to the pandemic. Considering the disruption COVID-19 had on in-person client/rep interactions, it is fair to question if this heavy reliance by most companies on face-to-face interactions aligned with the reported reductions in new business. 41% of the companies indicated that their reps are meeting less frequently with clients, where the other 59% indicated they are meeting more or the same [Fig 20]. The companies with digital engagement strategies clearly had a leg-up during this disruption. Surprisingly, when asked to rank their firm's remote/virtual client engagement process, a full 96% indicated it was average to great [Fig 21]. And despite that positive sentiment, 100% of the respondents indicated that they have plans to improve their client engagement experience [Fig 22]. When asked how they will improve their engagement strategies, 100% reported that they will be using a combination of new technology solutions and training [Fig 23]
The unanimity of this intention to invest in technology begs another question that has been asked by innovators in fintech for some time: how do distribution field force reps react to process change and new planned technology? Only 26% of respondents indicated that their reps are resistant to change, whereas 70% indicated that they have “ready-adopters” and 4% acknowledged a combination of both [Fig 24]. Using mandatory enterprise CRM adoption rates as a benchmark, with historically 47% of enterprise projects failing due to lack of rep adoption (Forresters), it is surprising to see such high rates of reported confidence regarding field force adoption of home-office driven technology. The respondents also indicated that investments in defined training programs included (in order) remote training (96%), E-libraries (96%), Train-the-trainer programs (87%), Learning Management Systems (78%), hybrid programs (78%), and vendor training (65%) [Fig 25]. As software training continues to become recognized as a critical aspect of change management, 70% of the participants indicated that they have increased training efforts in 2020 [Fig 26]. The quick rise of remote training experiences in response to the COVID-19 may indicate a new normal as in-person training platforms must continue to await a return to standard social protocols.
Another aspect of the client engagement process this survey addresses is the use of digital engagement tools directly by end-consumers. While more than half (59%) of the respondent firms offer client profiling tools to meet early “discovery,” Know Your Client (KYC), and preliminary fact-finding needs [Fig 27], 41% indicated that they have no client portal for use alongside their remote advice and meeting strategies [Fig 28]. One of the largest challenges with the transition to remote financial advice practices has been the loss of a physical presence associated with that advice delivery. Without brick-and-mortar locations, consumers want a “place” to go that contains self-service and a high level of accessibility to their financial resources. Given the historical and widespread acceptance of data being held in the cloud, it is expected that portal adoption will continue to rise.
The fourth section of this study attempted to understand the level of priority that the respondents assigned to current organizational goals and objectives. Recruiting and retaining top-quality reps were reported as a “high” priority (scored a 4 or 5 on a 1-5 scale) by 91% [Fig 29] and 95% of respondents respectively [Fig 31]. Improving client data-gathering was reported as a “high” priority by only 50% of respondents [Fig 30], and cutting operational costs by 73% of respondents [Fig 32]. Surprisingly, improving field compliance was only listed as a top priority by 45% of respondents despite the recently enacted and updated BIR, SEC, and state insurance regulations [Fig 33].
The second highest consensus top priority was improving the client experience, which was rated a “high” priority by 91% of respondents, with no respondents rating it less than a 3 on a 1-5 scale [Fig 34]. In addition to investing in retaining existing clients (77%) [Fig 36], only 37% indicated that providing ‘every client with a financial plan was a high priority [Fig 35]. This was slightly surprising given a decade-long shift of all insurance wealth management into holistic outlets, as they are connecting investments in customer experience and the delivery of financial advice (even if simplified-mass planning), with the alignment of customer retention and wallet share going forward.
Other clear firm high priorities indicated by respondents were implementing and optimizing remote work capabilities, listed as a high priority by 86% [Fig 37], and cross-selling and expanding product offerings (73%) [Fig 38]. While, at the same time, only 54% indicated that reducing data entry through technology integrations was a high priority [Fig 39]. This was somewhat surprising given that providers within the fintech community have seen increasing demand for technology-driven data integration opportunities, which can overcome the challenges presented by legacy systems and information security needs. Eliminating the time and effort required by dual data entry appears to be seen by enterprises to be a “nice-to-have” by half of the respondents. Improving the holistic view of a client was listed as a significant priority for the majority of firms (56%) [Fig 41]. This trend may lead to additional investment in client profiling experiences that capture the client's “big picture” as a KYC strategy, a BIR suitability defense, and to reveal data-driven, cross-selling opportunities.
A majority of respondent firms (73%) have a dedicated Innovations Team in place that seeks internal or external solutions to organization-wide problems and promotes technology and/or process accelerators [Fig 42]. Many firms are also starting to participate in accelerator programs to help them discover vetted enterprise-grade fintech solutions.
For organizational IT initiatives (chosen from 17 free-form choices) [Fig 43], client engagement received the highest response rate, representing 82% of carriers’ innovation projects planned for the next two years. This was followed by client and representative portals (59%), compliance document storage (50%), suitability reviews (50%), and profiling questionnaires (45%). IT projects that came in as a low priority across the respondents included client vaulting (23%), robo-advisor services (14%), and transcription services (14%). Only two companies indicated that no innovations were planned over the next two years, and the average number of new innovations for each respondent company was six.
The survey also attempted to determine how companies are paying for these innovations, as the benefits typically accrue primarily to the reps’ practice profitability. Many firms have continued to use their scale to achieve volume pricing through enterprise or affinity level relationships with technology vendors. And where widespread adoption is not feasible, firms have continued the trend of transferring costs to advisors willing to purchase approved solutions. Two-thirds (⅔) of the respondent companies indicated a vendor affinity program specifically designed to distribute innovation solutions to their reps [Fig 44]. For technology that is distributed enterprise-wide, and is required (or touches a significant percentage of the reps), roughly 61% of respondent companies charge the reps some form of technology fee directly recovered from compensation [Fig 45]. The companies that favor brand-standard processes and experiences tend to align with the more paternalistic view of providing software to their reps at no additional cost, while the organizations more aligned with rep independence passed the technology cost along to the reps. The range of reported technology fees was as low as $42/month and as high as $400/month with an average of $161/month and a median of $113/month. Some carriers indicated that their representatives could choose to purchase additional voluntary technology through their technology fee for as high as $800/month, consolidating billing through payroll deductions.
Insurance Wealth Management distribution field forces continue to see pressure to distribute competitive products and solutions given continued low-interest rates and sales disruption from COVID-19, social distancing, and financial uncertainty. Companies that had an existing digital engagement capability in place prior to 2020 seem to have managed to retain sales momentum better than their traditional in-person-engagement-only peers. Despite short-term disruption, the market opportunity for wealth management products including accumulation, decumulation, and protection products is unprecedented given the inherent wealth and dollar volume controlled by the Boomer population. The companies participating in this study indicated an overwhelming continued financial commitment to developing and recruiting human advisors and providing them with the technology and training needed to execute in this evolving landscape. While investments in technology were reported across the board, those directly impacting the consumer experience stood out the most. Client engagement tools, digital profiling, client, and rep portals were consistently rated as critical. The continued shift towards advice-led sales through financial planning or a holistic view of the end-consumer were themes that most participants indicated were critical to their success
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