Demographics driving sweeping changes across the industryBy Donna Glasgow | March 31 2015 10:03AM
Demographic realities, including the aging population and the rise of a younger generation heavily influenced by social media, are currently transforming the life insurance industry at the levels of product focus, distribution and client service, explains Mark Sylvia, who took the helm of Empire Life as president and CEO in June 2014.During an exclusive interview at the offices of The Insurance and Investment Journal in early March, he outlined some of the challenges facing the insurance industry and the particular issues that Empire Life is dealing with as a mid-sized player in a market dominated by giants.
More and more, life insurance companies find themselves in the wealth management business. This trend is not by choice, it is driven by the external factor of demographics, Sylvia says.
“Our clients, as they’re getting older, have moved from buying life insurance to saving for retirement and our agents have gone with them. If you take a look at our results, last year we sold over a billion dollars in segregated funds. That’s new deposits. That’s a significant number.” Wealth management currently accounts for about a third of Empire Life’s business.
Twenty years ago, even though Empire was a leader in the segregated fund market, sales weren’t anywhere close to what they are now, he adds. Other insurers, such as Manulife Financial, Great West Life and Industrial Alliance are even doing more seg fund business. “We’re all finding that our advisors are selling more wealth management products.”
This shift is a natural evolution for advisors whose customers are moving into their retirement savings years. So the wealth management trend in the insurance industry “is not by design, it’s by circumstance. I’m not saying it’s a bad thing, it is what it is,” comments Sylvia.
This trend is not going to change, he adds, since a large percentage of the population is heading toward retirement. “Their assets are moving into investment vehicles.”
Consolidation in the MGA market
Demographics, combined with increased regulatory oversight and compliance demands, are also impacting the independent distribution channel in a very significant way that is a concern for life insurers, especially a mid-sized company like Empire Life, says Sylvia.
“Life agents never give up their licence…but their productivity drops,” he explains. They’re selling more segregated funds as their clients grow older, but they’re selling fewer life insurance policies, which is a higher margin business than wealth management for MGAs. Not only that, the cost of meeting increasing compliance demands is adding to this pressure. Aging MGA owners are faced with a choice – do they invest more in their business at age 60 or sell? Demographics are driving consolidation in the MGA market, explains Sylvia. “In the MGA business, it’s been massive.”
The big issue for an insurer is to have your product on the MGA’s shelf. Will this be a greater challenge as MGAs continue to consolidate? “There is a concern that all insurers have right now – that some will say out loud – we look at the industry and see the consolidation and we know, of course, that it’s not over. Will we get to a point where only five or six MGAs have 90 per cent of the market? If we get into that situation, the big challenge is who owns them?”
Presently, the MGA channel is an independent system but, interestingly, as the MGAs grow larger and larger, the “MGAs don’t have enough money to buy MGAs. Who’s going to have the money to buy MGAs? It’s going to be big financial institutions,” he says.
As the leader of Empire Life, Mark Sylvia says his concern will be that the MGAs get bought by the ‘big three’ or the ‘big five’ life insurers and that they would then influence which insurance companies would be on these MGAs’ shelves. “The big thing about MGAs is they offer multiple products from multiple companies. But it’s possible, if you own an MGA, to limit which companies’ products are on the shelf. This is hypothetical but it is possible and as a mid-size insurer it’s certainly one of the things that is on our mind,” he says, pointing to the recent acquisition of Ten Star by Industrial Alliance as perhaps an early indication of this potential trend.
Is Empire Life interested in buying an MGA? “That’s not on our radar screen…We looked at it and realized they know how to do that business. We don’t know how to do that business, so we just look for good partners and support our partners.” He adds that the insurer wants to work with MGAs to help them lower their costs of doing business and integrate its services as much as it can into what they’re doing. The key is to make it easier to do business with Empire Life. “We’re not going to be one of the companies that own that channel (MGAs) so we’re just going to have to make sure we’re indispensable as a business partner.”
The power triangle
Sylvia says you’ll never hear him say anything bad about his competition. “Here’s what I think of them: they’re real smart, they’re well capitalized, and they know what they’re doing.” To compete with the big players, he adds, “you have to be on top of your game…There are fewer of us, everybody’s bigger and everybody’s better run than they’ve ever been before.”
When he talks to his employees about what makes a strong company, he tells them about what he calls the power triangle: Products, People and Process.
Empire Life is in a product driven business, so its offerings must meet consumer needs. The people part of the triangle involves both empowering and engaging employees and strengthening the company’s relationship with advisors.
The third side of the triangle – process – involves ensuring that Empire Life processes its business and transactions “as well as is humanly possible. The thing that I’m bringing into everyone’s vocabulary is faster, better and cheaper.” Faster is the demand of the age, better means minimizing errors. Cheaper? “Everyone in the industry has to drive costs down. We’re not an exception.”
So how does he intend to outperform competitors? “It happens to be something I call P.O.E. – Planning, Organization, Execution. Everything you do in business is the result of having first an idea, putting a plan together, organizing your resources to execute that plan and then executing that plan. The thing is to have more laser focus.”
For Empire Life this means concentrating the company’s energies on what it does best and setting a limited number of clear priorities. “Because you’re playing with big competitors who are really good at their job, you can’t divert your resources and try to do too many things. This gets back to Planning, Organization and Execution: Understand your markets, pick your markets and then do everything you can to be at the top of your game within that market. I make it sound easy but it’s really hard to do.” The only way to achieve this is by working at it as a team, he underlines.
Engaging the younger generation
Back to demographics, another major challenge facing the industry is how to engage the younger generation. “They buy differently and they think differently.” They do online research to educate themselves before buying. Once they know what they want, they are looking to buy it quickly.
The company’s Fast & Full platform is an online resource to fast track the life insurance application and approval process. Launched over a year ago, Sylvia says the platform is attracting younger advisors, from Generations X and Y.
The company is now having discussions with its advisors to determine how this tool could help them gain sales from younger clients.
Advisors have their own web sites. Is it possible to develop products that can be sold through these websites or offer a solution that does most of the work and then allows advisors to engage the client near the end of the process? While Sylvia notes that Empire Life is not at this point yet, the Fast & Full platform is designed to be flexible enough that, with some enhancements, advisors could use it themselves to bring in business.
The banks have a huge advantage because young people already have bank accounts, so they have broken down that first hurdle of relationship building.
For older advisors, the challenge of serving the younger generation is simple, says Sylvia. Who do you service if, for example, you have a choice between spending time selling segregated funds to a long-time client, or selling a $100,000 term policy to a young person who lives 160 miles away. “If I go visit them, I’ve spent that commission and every renewal commission forever.” For insurers, the challenge is to find a way to create a structure that would allow advisors to capture the younger client cost effectively. This way, as the client’s needs grow, the advisor will be there for them.
Insurers need to develop the tools needed to help their distributors reach the younger generation , he says, adding this warning: “Because if we don’t, we’re going to give this market up to the banks. Now I realize that banks are part of our family because they own life insurers in many cases, but their distribution system is not part of my family and they’re building in branch or side-by-branch systems that are engaging younger people. So if we want the MGA system to engage some of those people, we have to help them build some of the tools.”
How urgent is it for the industry to meet this need? Sylvia believes life insurers still have a little time to develop and implement their strategies to reach young people, but he says it is important that they first do their research and provide the right solution to connect with them effectively. “The harder thing is to swing and miss – in other words, come up with a lot of goofy things that don’t really work and don’t engage young people. (If this happens) they’ll start to think that life insurance companies are idiots…so we have to be careful how we go into this space.”
Successfully engaging young people requires a very different approach from what has served the industry traditionally, he adds. For example, “if you’re too commercial they’ll withdraw – We have a ton to learn.”
The banks, adds Sylvia, have a huge advantage because young people already have bank accounts, so they have broken down that first hurdle of relationship building.
If the banks are a danger to capturing this market away from insurance companies what about the possibility of emerging distribution channels developing, perhaps through Google or Facebook?
“They’re totally dangerous,” says Sylvia. “They’ve broken down the first barrier…In the insurance business and wealth management, there is a level of trust needed before you get a purchase. Everybody knows who Google is, everybody knows who Facebook is. These social media and web engines have an advantage in that they are ubiquitous, he says adding, “If Google was to say, ‘We are now going to offer term insurance, watch out. If they’re going to get in our space they’ll hook up with an insurance company that will supply product. There’s no reason to believe that eventually they won’t.”