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Why Distribution Innovation Hasn't Yet Occurred Among Life Insurers

Chuck Johnston
Insurance Experts' Forum, November 14, 2013

A recent project caused me to revisit the business process, capabilities and requirement models for life insurance sales illustration systems. This is a topic dear to my heart since my first job in the industry focused on sales illustration, agent enablement and new business for a life insurer at a time when U.S. life sales illustrations may have reached peak complexity. It was the mid-1980s, interest rates were high, TAMRA(7702) had yet to be passed and new life products had internal code names like “Tax Dodge.” It was a great time to learn product mechanics, alternative distribution strategies and financial planning scenarios.

Today’s insurance sales environment is certainly much tougher, and one would think that, if anything, the tools used to sell insurance would be much more powerful and finely honed, but I find that the critical capabilities for sales illustrations have not changed greatly over the last 30 years. There are certainly more caveats as no government-regulated industry disclaims less over time, there are more customer suitability rules but the underlying suitability requirements have not evolved greatly. “Solves and scenarios” used by producers may even be less complex than before.

Most new capabilities seen today are around mobility, focusing on tablets and smartphones, better graphics, and greater integration into the overall sales process. The most innovative concept talked about in the industry right now is centralization of calculations through shared product configuration engines to enable a single implementation of product from sales to policy administration. This is actually more of a process improvement based on the Celent Innovation model and is only practical if a carrier is willing to buy an end-to-end solution from a single vendor and be willing to do illustrations in connected mode. This last requirement is problematic as producers are pushing for mobility solutions that can work in no/low signal areas as well as the local Starbucks.

Why hasn’t the industry bar for sales illustration capabilities continued to rise over time? We can’t blame our technology vendors since they are generally more than capable of meeting new requirements in other application areas, if the market demands them. The problem lies with that demand, as the insurer’s approach to the individual life insurance market has not evolved.

Celent believes that distribution paralysis and the continued belief that consumers must be heavily persuaded to invest in life insurance before they will buy, has stifled innovation for life insurance distribution, which then depresses the market for innovative technology in the space. eApplication probably has the most traction in transforming life insurance new business today, even though the concept has been in existence for many years.

So are we doomed to illustration mediocrity? No. Celent believes that the insurance industry is on the cusp of significant distribution change driven by connectivity/mobility, big data, changing consumer demographics and the dynamics of financial planning that will require innovation in life insurance illustrations around complex scenario planning, on-plan financial tracking and real time information requirements that will require greater “solve” capability and data integration than before. And I suspect many of the sales illustration vendors look forward to a more dynamic and competitive market where they differntiate through thought leadership in distribution transformation.

This blog has been reprinted with permission from Celent.

Chuck Johnston is a research director in Celent's insurance practice, and can be reached at cjohnston@celent.com.

The opinions posted in this blog do not necessarily reflect those of Insurance Networking News or SourceMedia.

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