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Conning Still Grumbling About Distribution, Wishes Some Channels "Culled"

Two studies released recently by Conning caught our eye. The first, State Differences in Life Insurance Marketing: Considerations of a Federal Level Playing Field, has...
July 29, 2009

Two studies released recently by Conning caught our eye. The first, State Differences in Life Insurance Marketing: Considerations of a Federal Level Playing Field, has a sub-head stating "Life Insurer State-Based Distribution Strategies May No Longer be Effective in a Changing Marketplace." Summing up the report's conclusions, a Conning official said: "State level focus has made sense in the past, due to the high barriers to entry at each state market," said Stephan Christiansen, director of research at Conning. "That said, those insurers who are prepared for the likely single-licensure, single regulatory system, in terms of distribution, geographic focus, and other issues, will gain a significant advantage."

The second item in this theme is Property-Casualty Insurance Distribution: Focusing the Value Proposition, Embracing Change. "Each property-casualty distribution channel focuses on different elements of the insurance value chain," said Alan Dobbins, analyst at Conning. "While each solves a customer need well, and adds value to the insurer-client relationship…[T]his situation, [is] coupled with a compensation system that has not been effective at promoting cost savings..." But here's the kicker in this one. Stephan Christiansen, director of research at Conning opines,  "…it becomes clear that while new channels and options continue to arise, there has been no significant culling of existing channels. [Our emphasis added]. While it is not clear which channels should fall out in this process, it is very likely that the industry will not sustain the cost structure of this complex system for much longer."

What It Means to Agents:  Perhaps without realizing it, Conning has drawn its predictions on non-data assumptions that expect a federal government system for health insurance, and conclude all marketing systems currently in use by all carriers have all failed to reduce costs.

It is far too early to tell what changes will happen to the current U.S. health benefit and coverages delivery system, but one look at the current debate in Congress makes clear that a switch to a federal government system is not one.

It appears more probable that the federal changes which may succeed could make the current system for health insurance - i.e., ERISA for mega-corporations and state-by-state for all others - revert to one that would again allow national health insurance group programs to be developed in the private sector and made available to persons across states lines. It was ERISA that unfortunately "trapped" people and small-to-mid-size businesses into state-by-state programs, doing away with nationally available group L&H offerings while giving more freedom to mega corporations.

As to "production markets" having compensation systems that are cost burdens, Conning is over-stating this by generalizing.  At the April 2007 annual conference for the Society of Insurance Research (SIR), carrier and independent research firms were told by three different leading Wall Street insurance industry analysts how growth, profit and expense efficiencies continued to grow in 2006, and that in P/L, C/L and L&H, this growth has been generated by insurers using the independent agency and brokerage systems.  Each noted that the IA performance was greater than that of the mega-brokers, which had flat-lined. Further, the IA sector's growth was in contrast to the clear decrease and/or flat position reported by insurers using direct, employed or exclusive marketing systems. Barring an unexpected change in the economy, both segments were predicted to hold their trend lines, i.e. IA growing and direct/captive decreasing.

As you read in this newsletter, The Hartford is opening up AARP®-branded auto insurance to independent agents.  The Hartford and AARP wouldn't do this if it didn't make business sense and profit.  Is it cost-effective to have a direct-only system to reach into, grow and service an audience that doesn't want that system?  No! In this instance, the only things needing to be "culled" are Conning's assumptions and conclusions.

Conning is great in doing data analysis results of current marketplace and segments outcomes.  We love those reports.  But they have been off-the-mark when they take data from a limited and select cut of carriers, listen to those carriers' "wishes" for particular legislative/regulatory outcomes and use that limited point-in-time set of data to project trends and market outcomes for all. Understanding where things may or may not go and what factors might drive these options requires understanding and tracking at the floor of the marketplace, not just what's happening at the top with a handful of national/international carriers.

Since the inception of the business of insurance in the U.S. and through all the shifts our business has made, Main Street independent insurance agencies have adapted successfully. Many of these changes have been difficult, but IAs have made the changes and often had to wait for their carriers to catch up. We continue to offer Conning the opportunity to partner with PIA National when they do market trend predictions, in order for Conning to have an avenue to the floor-of-the-marketplace information. Without that, research is bound to be inaccurate.