The exponential growth of the internet has brought about more direct selling of products online and this process is starting to move into the insurance industry as well. In fact, how insurance products are sold to consumers has many different faces today.
There are some insurance companies that are starting to sell insurance products directly to the public via the internet without using agents and brokers at all in the process. Some companies only sell insurance products via their own agents. On the other side of the distribution model spectrum, there are some insurance companies who choose not to sell directly to consumers, but continue to rely on insurance brokers to sell their products.
There are some insurance companies using all three sales channels but this trend bears the question of whether or not insurance agents should boycott the insurance companies who are not using their services but are competing with them.
It’s important to make note of a few facts related to how selling directly to the public affects consumers:
• Selling directly to the consumer does not ensure that premiums are lower; and in many cases, premiums are actually higher.
• Insurance call centre employees are paid a salary and get paid regardless of how many sales they make. Insurance agents and brokers are only paid a commission when they sell an insurance product.
• Not all insurance products are viable to sell directly to the consumer. Complicated products such as universal life or disability insurance are sometimes too complicated to explain over the phone, and require in-depth explanation and discussion.
Are insurance agents and brokers facing the possibility of being phased out in the insurance industry? If more insurance companies start selling products directly to consumers via their websites and call centres, will they eventually go out of business?
To look into this question, we got the opinions of industry experts and insurance brokers. To discuss the issue, we asked the following industry professionals what they think:
• Nancy Allan: Executive Director, Independent Financial Brokers of Canada
• Ami Maishlish: Active contributor of For Advisors Only and Industry Veteran
• Doug Paul: Vice President Business Development at SSQ Financial Group
• Lawrence Ian Geller: Founder of For Advisors only, and CEO of L.I. Geller Insurance Agencies Ltd.
• Darlene Francis: Director, Corporate Communications and Marketing of Advocis, The Financial Advisors Association of Canada
1. Do you see the life insurance industry shifting to more direct offerings?
2. Do you think the insurance companies will start separating themselves into two camps: Those that offer direct products, versus those that rely exclusively on life insurance brokers and agents to sell their products?
3. Are direct offerings good or bad for the consumer?
4. Should more direct offerings be a concern for life Insurance brokers and agents?
5. How can life insurance brokers and agents separate themselves from direct providers? What value should they be bringing to the table?
6. Do you think there will still be a place for insurance brokers /agents in the industry 10 or 15 years from now?
The situation now and in the future will rely heavily on where the focus of insurance companies lies – on themselves, or on consumers. If they focus more on money, then greed rather than the best interest of consumers would take precedence.
There is no argument that insurance products, particularly life insurance products are complicated. Not only in how they are modelled, but the application process is not straight forward either – due to the wording.
Insurance companies need to consider that even if the process works well in the beginning and direct offerings prove to be financially rewarding, it could ultimately backfire. In the long run, issues could arise because consumers don’t understand the policies they purchased, and it could turn into a huge customer service mess.
Now let’s see how our expert panel responded to our questions.
1. Do you see the Life Insurance Industry Shifting to More Direct Offerings?
Our industry experts discussed how the different types of insurance will fare being offered directly via the internet. However, they all agree that consumers will still want to have access to advisors, and not allowing them to have this option will potentially put them at risk.
Ms. Allen had this to say:
“Purchasing traditional life/health insurance products doesn’t lend itself as easily to the online marketplace as P&C products. It can be difficult for consumers to assess how much, and the best type of life insurance they need, and know how to accurately answer any medical questions.”
“Errors can result in a claim being denied down the road. However, studies have shown that in today’s digital world, consumers often turn to the internet to conduct their initial research, to understand their options, and compare products/prices before deciding to purchase. Many of these consumers will still turn to a life insurance broker to guide them through the application and approval process. The broker helps the client understand their options, ensures the accurate completion of the application, and – because the independent broker can shop the market – may, in fact, reduce the client’s costs by finding better insurance at a lower premium.”
Mr. Paul thinks it is more than a shift in only life insurance:
“I think this is more than a life insurance shift. Yes, over time there will be more direct purchases, especially for more simple, straightforward offerings. Having said this, there will always be consumers who choose to purchase through an advisor for advice and relationship and service. This will be more common in more complex product needs, but for some consumers it will hold just as true for simple products as well.”
Mr. Geller sees a parallel with how successful direct offerings are:
“If the insurers see it as a successful method of distribution yes, otherwise, as with legal & general, they will return to selling through agents.”
2. Do you think the insurance companies will start separating themselves into two camps: Those that offer direct products, versus those that rely exclusively on life insurance brokers and agents to sell their products?
Ms. Allen noted that this model already exists, but she goes on to say that:
“Few, however, have taken the step to rely entirely on this platform. They recognize that there is no “one size fits all” for consumers and still look to life insurance brokers to establish the face to face relationships that help sell their products.”
Mr. Maishlish seemed to take the position that it is not possible to predict if they will – “My crystal ball is broken and the repairman has retired. In other words, I don’t know but the possibility exists.”
Mr. Maishlish also brought up an interesting point that removing brokers and agents may require the need for advocates, when he said: “My primary concern is that where the good and consumer-interest focused advisor is removed from the picture at issue, the need will be created for claims advocates to advocate for consumers and clean up the mess.”
Mr. Paul’s answer was very interesting and decisive – he answered a flat out “No” when he said:
“No, I think companies will do both, in fact as new ways to distribute arise companies will explore these as well. I think consumers are more likely to be divided into camps, those that prefer the advice and service and relationship with an advisor and those that prefer the direct offering, though some will purchase both ways depending on their needs.”
Mr. Paul also makes an interesting point that direct offerings can be made by advisors on their own website or direct mail as an ideal solution for all involved.
“I believe carriers will start equipping their advisors to have a more direct offering through their business model. Why could a direct offering not be made by the advisor through their own website or through direct mail or email or links on their email signature etc. with the relationship still being managed by the advisor? I think as long as carriers do not make direct offers more attractive or better priced or not available to advisors, and ensure advisors are not negatively disadvantaged in pricing or offerings, then this could be a win-win.”
Mr. Geller also makes an interesting point when he answered, in part:
“Not in the immediate future. I suspect that many insurers will try to use both distribution methodologies until they determine whether they can use direct products only and remain as or become more profitable.“
Ms. Francis believes that “existing companies with a strong national presence will continue to operate in both direct and broker and advisor channels.” She goes on to say that because insurance products are growing in complexity, advice is crucial for consumers.
She also made an interesting point about the future of direct products:
“That being said, the direct channel may potentially leave the door open for new companies to enter the market with simple products.”
Hopefully the insurance companies will consider the problems that could arise if they sold only direct products. It could be surmised that if they did this, they wouldn’t separate into two camps, but continue to offer different channels.
3. Are direct offerings good or bad for the consumer?
From the answers we received from our expert panel, it is too soon to tell if direct offerings will positively or negatively affect consumers.
Ms. Allen talks about both the good and the bad of direct offerings. On the positive side she says:
“They provide an alternative that will suit some consumers but not others.” Because of the complexity of the wording in life insurance applications, she says “In the worst case scenario, without advice, the consumer may not accurately complete the application and then has the claim denied down the line, when he or she or the family is depending on the financial coverage.
“Insurance regulators permit direct sales but have set certain parameters for the sale of insurance online aimed at boosting disclosure. IFB has always taken the stance that, at a minimum, any client who chooses to purchase insurance online, should be able to get access to advice from a licensed life insurance advisor at any point during the process.”
According to Mr. Paul, the answer depends on the consumer, and he made this clear when he answered:
“Not as simple as that. For consumers needing or wanting advice or personalized service or a relationship, they will not as likely get what they desire from direct offerings, for consumers purchasing simple products where they believe they have the advice they need and are not looking for personalized service and relationship, then a direct offering may be more attractive to them.”
Mr. Geller has a slightly different slant, in that he said:
“Direct offerings are not, simply due to being distributed directly to consumers, either good or bad. There may be a lack of competitiveness in the product’s provisions or pricing and this may not be drawn to the attention of the consumer by a direct distribution methodology and suitability of that product when compared with other products available – and would likely not be disclosed. Also, where independent agents advocate for their clients, that may not be the case for captive agents and would certainly not be the case for online or other direct sales without agent involvement.”
Mr. Geller discussed the greatest difficulty consumers may face:
“Possibly the greatest problem for consumers would come from a failure to disclose information on an application or at the time of claim, but the former may now be happening for simplified issue coverages and for applications where a paramedical examiner is relied on exclusively for the Part II medical questions.”
Ms. Francis made a significant point that in the future, consumers may run into issues when they go to collect an insurance policy thinking they’ve filled out their life insurance applications properly only to find out when they go to collect their insurance that they didn’t.
“The sale of product direct to clients who may not have the requisite understanding and knowledge may be a risk. The concern comes when consumers think they have properly filled out applications and only become aware of an issue post-crisis. We will only truly know how clients are affected by direct sales over time. It is possible that we may be creating a problem that will only materialize years down the line.”
Again, hopefully insurance companies are considering any and all potential issues that consumers could face in the future. In the end, they are all that matters – from an agent, or broker point of view.
4. Should more direct offerings be a concern for life insurance brokers and agents?
To summarize Ms. Allen’s reply, although direct offerings compete against agents and brokers, they are not for every consumer. The good news is that insurance brokers can count on the personalized relationship they have with their clients.
However, could the way insurance companies market their direct products give the wrong impression of agents to the public and interfere with the agent/consumer relationship? On this note, Mr. Maishlish had this to say:
“From a psychological perspective, and particularly from the pitches made to consumers in some “direct” sales promotions, the impression is created that advisor-sold policies are expensive, involve too much “hassle”, and take too long to issue.”
Mr. Paul doesn’t think the industry as a whole should be concerned, but described specifically who should be worried – “I think the advisors that offer no advice, no relationship and no personalized service, and are just a price shopper with no added value, they should be concerned.”
Mr. Geller’s advice:
“I find that it is seldom beneficial to worry about something that is and that I (or we) can do nothing about. While it may erode the possibility of those clients from dealing with an independent agent, it is also possible that they are not people who would deal with an agent but who buy creditor insurance directly now and otherwise rely on group or association benefits.”
Ms. Francis’ opinion is that it is the consumers, as well agents, should all be worried.
“If consumer protection is key then we feel everyone should be concerned – life agents and brokers included. With increasing product convergence between insurance and securities products, along with the increased complexity of financial products, we believe direct offerings, if extended beyond very simply life products, increase consumer risk.”
5. How can life insurance brokers and agents separate themselves from direct providers? What value should they be bringing to the table?
The answers on how to distinguish themselves and the value life insurance brokers and agents can bring to the table were pretty much standard across the board, but Mr. Geller summed it up best when he said:
“They would distinguish themselves as they do now, with appropriate determination of needs and wants, by making comprehensive recommendations, with the use of product comparisons to determine the most appropriate product and with service and responsiveness. It is those who don’t now do these things who may find themselves more challenged in future.”
6. Do you think there will still be a place for insurance brokers /agents in the industry 10 or 15 years from now?
The answers were solidly positive from four members of our industry expert panel:
Ms. Allen: “Absolutely. There are advantages to consumers and the companies to continue using brokers.”
Mr. Maishlish: “Definitely yes, and assuming that “direct” sales of life insurance will continue to gain a foothold in the marketplace, there will also be an increased need for “remedial advisors” to review and attempt to correct mistakes made during the course of purchase of “direct” sold life insurance.”
Mr. Paul: “Of course. There is more demand (though it may be latent) than supply, so the future bodes well for advisors that offer good advice, relationships and service, and adapt to the reality of direct offerings in the marketplace.”
Ms. Francis: “Without question – the consumer risks associated with removing the professional services provided by financial advisors is unacceptable. Consumers are increasingly in need of professional financial advice.”
Mr. Geller’s reply took a slightly different look: “I expect that there will be, as there is in the UK and Australia, but it is possible that the market will become far more bifurcated with those who can and are willing to pay for service getting it.”
From the answers received from our industry experts, our knowledge of the industry, and other conversations, such as this news article on lifehealthpro.ca, it may be too soon to evaluate the threat. Thus it’s too early in the game to take the stance that life insurance companies making direct offerings are the enemy.
Insurance companies more than likely won’t have complete control over the situation, because consumers will have a major say in how life insurance products are sold to them; so much so that moving towards solely offering direct products may backfire and create more problems in the future for life insurance companies.
Perhaps time could be better spent if advisors banded together to strengthen and solidify their role in the industry. In this regard, the future of sales channels is up to the integrity and usefulness of advisors to consumers; and agents or brokers who aren’t doing all they can for consumers should step up their game.
