#122 | The Future of Middle-Market Life Insurance Distribution Ain’t What You Think

Over the last few years, life insurers have invested truckloads of money in digital engagement strategies designed to capture the middle-market in life insurance. And yet, despite all of the fanfare in the press and self-congratulatory back-patting, most of these new direct distribution strategies have done little by way of real sales. They are not disrupting the market. They’re not even making a dent. Even MetLife shut down its massive Direct life insurance arm. And if Snoopy can’t pull it off, who can?

The answer probably isn’t what you’re thinking. The distribution strategy that has managed to reach the middle-market, millennials and minorities is another “m” – multi-level marketing. Yes, MLM. Yes, Amway-types. Momentarily withhold your general negative feelings about these groups and simply observe what they’re accomplishing. Insurance MLM firms have recruited literally hundreds of thousands of licensed agents with very different demographics than your usual life insurance crowd. These agents, many of whom work part-time, generally sell small-face term and permanent insurance products. They aggressively recruit friends and family to sell insurance as well. And from what I’ve heard from carriers serving this market, the mortality and persistency experience and overall profitability is generally as good if not better than what they get out of BGA distribution. Uh, what?

Little wonder, then, that companies like Nationwide, PacLife, Transamerica, F&G, National Life Group, Foresters and others have begun to focus on these types of distributors. Everyone knows that working with BGAs means getting constantly raked over the coals on compensation, pricing and underwriting. It is an extremely tough market. In contrast, each MLM distributor funnels all of their business to a small group of carriers who each get enough case volume to even out the bumps in underwriting. Yes, of course, there are supervisory issues that need to be managed. Yes, of course, some of their agents are inadequately trained. Yes, of course, some of these firms are kind of shady. And yes, of course, a lot of these agents are selling Indexed UL that they do not even remotely understand. So, in other words, this isn’t so different from BGA distribution.

For years, our industry has agonized about the fact that there are not enough new agents entering our business. There are still a few large mutual companies recruiting huge numbers of novice agents. These greenies are told to sell permanent policies to friends and family and fit into organizational structures where they’re trained by a manager who gets a cut of their commissions who works for a GA who also gets a cut of their commissions…hey, wait a second, isn’t that kind of like multi-level marketing? Maybe MLM distribution isn’t quite as foreign as we’d like to think. Maybe it’s even filling the traditional role of old-line mutual companies in bringing new agents to the business. Instead of the sign above the door saying Big Mutual Company, it says Et-Cetera Financial and it’s a multi-carrier distributor. And unlike other MLM companies schilling miracle beauty or nutrition products, these insurance MLM shops are selling for-real life insurance policies to an underserved market. It may not feel innovative and it won’t get corporate-types excited – but it appears to be working.

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