Teams perform better than lone-advisors

A life insurance licence has proven its worth during this downturn. Specifically individual life insurance sales, which held up remarkably well in what has been an extraordinarily bad recession, according to recent data from LIMRA.

“Canadian life insurance sales were relatively level, with only a 1% decline for annualized premiums in the first quarter of 2009,” LIMRA president, James W. Kerley, told a group of distribution professionals at LOMA’s annual conference in Toronto.

Even though Canada’s retail insurance sales force is aging, it hasn’t lost its sales edge. While insurance sales experienced double-digit declines as clients let their universal life contracts lapse, advisors offset those losses with new sales of term and whole life policies.

“We hear from a number of companies it’s a great time to be adding those types of products to the portfolio,” said Kerley. “It’s a great time to be a mutual insurance company, and it’s a great time to be a term insurance provider.”

The Canadian market share of UL policies has declined this year from 42% to 36%, according to LIMRA. Meanwhile, whole life has seen its market share grow to nearly 30% from 27%, accompanied by an 11% jump in annualized premium growth. Term sales saw about half that growth rate, climbing by about 6% in annualized premium growth.

When it comes to whole life sales, producers have experienced success in selling volume. Policy counts are up in term and whole life, but the average policy size tends to be relatively small. Whole life policy size declined by 4%, with the average policy size at roughly $100,000, generating on average a premium of $17.33 per $1,000.

Whole life policy sales were the bread and butter of the career sales forces, representing 43% of their sales for the first quarter, a 3% growth from the same period in 2008. This may account for the superior success of career insurance sales forces, which saw a substantial annualized premium growth versus independent agents (who saw a decline in their market share of sales).

On the independent side, term policies were the go-to product, accounting for about 45% of sales.

Who’s buying?

The affluent clients. “They’re recognizing the need for insurance, but they’re not buying a lot of universal life or whole life policies,” Kerley explained.

The recession is also proving a blessing in terms of recruitment, and many insurance companies have ramped up hiring efforts. Both the relative market stability of insurance sales, and a larger labour pool are allowing insurance companies to attract higher-quality recruits. “It’s actually a great time to find really good candidates,” Kerley affirmed.

Partnering up

Another trend that’s helping in tough times is the team-based advisory practice. A LIMRA study found practices composed of multiple members have much greater sales success per advisor than the traditional lone-advisor sales model.

Kerley said the entire insurance industry could see its sales capacity drastically increase if the solo-shop and low-support practices either migrated to a higher-support platform or teamed up with other advisors in a multi-advisor platform. Currently, more than 70% of North American insurance advisors are working solo or are in a low-support environment.

More than 70% of the insurance sales force is also over the age of 50. Increasing sales capacity—particularly in the independent channel—is crucial to the industry maintaining strong sales as advisors move into retirement.

In fact, the sales success potential—the ability to achieve top-quartile performance—of an advisor who migrates from a solo practice to a multi-advisor practice increases by nearly three times, Kerley pointed out.

What’s surprising is that only 9% of the industry uses the multi-advisor model, with much of that penetration in the bank channel.

It may be a coincidence, but the bank and career channels have done much of the recruiting and grown sales to offset the departure of that aging independent distribution network. Kerley noted the average age of advisors in the banking channel is 40.

But it isn’t just recruiting that’s helped career forces grow; migration from the independent channel to the career channel seems to be on the rise. At least three major carriers have exited the independent sales channel in the U.S.

Kerely suspects the multi-advisor model used in the affiliated sales channel also has considerable appeal for experienced advisors looking to streamline things such as compliance, and building skills through mentorship. Assuming a multi-advisor practice is composed of advisors of varying ages, it can also provide an easier transition plan because a younger colleague will already be familiar with the client base.

“There’s very specific advantage to migrating your producers to team-based relationships. It demonstrates that the earning power will clearly be an incentive for experienced advisors and will allow for a separate discussion on topics such as succession planning,” Kerley added.

Generally, advisors who enter the business when they’re younger do much better in the long run, but early sales success goes to advisors who enter the business after the age of 30. Recruiting younger advisors only pays off if the senior partner is willing to wait the seven years, on average, it takes for the junior partner to maximize his or her sales capacity.

On average, advisors between the ages of 30 and 39 earn $82,000 while advisors aged 20 to 29 earn $59,000. Advisors who enter the industry in their 30s, and with seven years of experience, earn 40% more than their contemporaries.

Kerely says dealers have to decide when recruiting if they want to invest in long-term success or immediate sales growth.

“One question [dealers need to ask] is how fast do you want to get a group of advisors producing? If you want immediate production growth, this study would suggest an older age group is going to get you faster production,” Kerley explained. “If you can get somebody who’s 25 versus 35, that will probably get you additional years of productive sales growth.”

The required sales support of higher producers also suggests there’s a much greater need for improving application and underwriting processes. More than one-quarter (28%) of the survey’s respondents identified better technology as their most important need. A further 23% identified the need for better back-office services.

The study also found top producers desire less product training, consolidated reporting and compliance support. They want better access to client records; more advanced sales support; and improved back-office support for servicing clients, including better electronic submission of client applications and online access to application status.