Distribution Channels of the Immediate Future, Part 2

As demographics shift, and as $41 Trillion passes between generations, you, the insurance carrier, have a serious shot at a lot of that money. The wealthy in this country will be looking for ways to protect their assets. Mortality and morbidity products are the answer in many cases, and you understand them better than the rest of the financial services industry. Now you just need to reach the customer. Here's how.

First of all, you will need new products with new features. An Annuity-LTC combo product would be nice. Then you'll need some leadership so that inter-silo sniping doesn't wipe out your initiative (you've seen it, I've seen it, don't let it happen this time). Then, you need to make it easy to buy.

Here's the cold, hard truth about the next generation of financial services clients... it's not that we don't like to wait, it's that we simply WILL NOT wait. You need to find a way to make buying your products as easy as buying a mutual fund, or your customers will just go buy something else.

Yes, I understand the regulatory environment. Yes, I realize the complexities of state regulation. What I'm saying is that our industry needs to DEAL WITH THESE THINGS NOW, or be swept aside by clients who will be starting with a total asset base of $41 Trillion.

Make buying a VUL as easy as dropping a ticket for a stock. Your new customers expect it. Do it now, because the clock is ticking.

Technology is NOT Functionality

For the past 10 years, South Carolina Blue Cross has been successfully training its own programmers.

"Colleges were teaching students how to build operating systems for PCs, develop client/server systems or game software, but they didn't understand legacy systems or large-scale computer programming," said BlueCross CIO Stephen K. Wiggins. "So, we started our own internal program."

Many times I've heard insurers argue that no matter what a system DID, it simply HAD to be written in a particular language because that language is ALL the colleges teach, and they CAN'T hire people who are willing to work with anything that's more than a couple of years old.

I never understood this. Can you think of another industry that determines it's technology strategy based on the whims of soon-to-be-hired entry level staff?

Me either.

I have a B.S. in Computer Science, and I'll tell you this... if you hire a solid student from a good Computer Science program, the kid can learn absolutely any language you throw at him or her.

If, on the other hand, you decide to save some money and hire a so-so student from a mediocre program, he or she may never learn another thing after the diploma shows up.

Technology is NOT functionality. Focus on what the system does, how much it does, and how well it does it. If it's any good, you won't care what it's written in.

Distribution Channels of the Immediate Future, Part 1

In my opinion, distribution of insurance products is about to change in a BIG way. Along with the changes in demographics in the US, as well as the immense transfer of wealth creating a new breed of affluent investor, mortality and morbidity products will break out of the current box.

One of the most significant growth areas, I predict, will be in worksite marketing. Employers, for good reason, are scared to death of long-term health care commitments. The idea of having someone come into your office, sell in-demand individual products at essentially a group rate, and having to do nothing beyond providing the conference room and handling the payroll deduction... well, that's a good deal. And it's something I believe more and more employers will seek out in the years to come.

For so many years, margins in the worksite marketing arena have been so small that there has not been much of a market for truly automated technology. Everyone I talk to in worksite says that there just aren't many specialized, highly-automated solutions out there. My employer is in the process of building one out, right now. We've had an excellent foundation for a long time, and we're now bringing together everything that we've heard over the years to create the ultimate worksite system. I've been involved in some of the high-level design, and it looks like it will incorporate everything necessary for case setup, enrollment, payroll deduction, group management and billing, and portability.

The carriers that put themselves in a position to capitalize on this opportunity will have found one of the cheapest ways to reach a large volume of prospective customers with relatively minimal expense. Even as automation increases, and margins go up, this will still be about VOLUME. Make sure you're ready at the enterprise level to get your share.

Rules-based packaged solutions

Insurance and Technology cautions carriers about the effort associated with implementing a "flexible" solution...

The strategy that is most in favor these days -- at least among the analyst and the vendor community (no surprise) -- is to invest in a flexible, services- and/or rules-based packaged solution. Yet many insurance technology executives think that implementing a package can turn into a kind of back-door in-house development project once all the necessary integration and customization has been accomplished.

I guess I've never understood how people could get so excited about first buying a system and then having to build it. I thought we'd figured that one out a long time ago.

This is the first article I've seen that doesn't revere rules engines and SOA as a magical, one-size-fits-all silver bullet that solves all of your problems. It's also apparent that those "insurance technology executives" who have tried a "rules-based packaged solution" are being more public about their disappointment.

There has been an astronomical amount of money spent on solutions like these, without a single conversion block of any substance to point to. Someone's going to get called on it, and soon.

Stay tuned. I predict this is only the first crack in the dam.

Combo Products - The Product for the Next Era

"This will guarantee you income for as long as you live, and it covers you if you end up in a home".

That one sentence is the start of a revolution. Combo products, especially life and annuity products with an LTC rider, are going to be the next big thing in our industry. The combo product addresses EXACTLY what the affluent retiree is worried about - outliving his or her assets, or depleting his or her estate due to an extended stay in a nursing home.

It solves everything that was wrong with long-term care in the first place; the morbidity risk is mitigated by the fact that in most cases, you're just giving the guy or gal his or her money back early.

So, what's stopping you? At least one carrier actually sold the lights out of this product - but they had to pull it, because they couldn't administer it. Other carriers are so hung up on their own silos that they are letting an opportunity pass them by. The LTC folks want it to be the annuity folks' problem, and vice versa. DON'T let this happen to you! There's no time.

Make sure that your Retirement Services division (or whatever you call it) knows it's not just going to be dealing with payout annuities. Make sure that they can administer these products! As I'm sure you're aware, most admin systems can't handle a required-premium LTC rider on a flex-premium base. If yours can't do it, go get one that can!

Don't miss this opportunity.

How an insurance company should look for software

I've been working in insurance software for 13 years. I've seen plenty of carriers get what they needed, but more often I've seen them get little or nothing for their efforts. The successful ones have done the following:

• They focused on the specific task (policy administration, illustrations, imaging) and didn't clutter up the search
• They made the decision in a reasonable amount of time
• The decision makers were directly involved
• They dispensed with buzzwords and looked at what the system DOES

Now, as a software sales guy, there are also some things that you can do to help me help you. Here are some tips.

• Make sure I understand what you want. I'll make sure you can see where my solution can help.
• If you have already decided who you're going with, by all means, pick 'em and start your project! Don't involve me just to make it 'fair'. Save yourself some money. Don't initiate a formal search if your mind's already made up.
• You go to all the same conferences I do. You meet all of the same people that I do. Most of them are quite willing to tell you who's good, and who will rip you off. LISTEN.
  
• Use the smell test. If it doesn't pass, blow it off. If it sounds too good to be true, it is.
  
• Remember - there is no magic in insurance technology, only unscrupulous vendors willing to prey on ignorance.
• Any vendor can say anything. It's all about the references. Find another carrier who has used the system for a long time and get the pros and cons. Find someone you trust - don't just use the vendor's reference list.
  
• Be realistic about industry analysts. They have absolutely no financial incentive to recommend anything that is straightforward and easy to understand. On the other hand, if they can sell the industry on something that it DOESN'T understand, they can make a fortune. They're trying to turn a profit. It's not wrong; just be aware.
  

The Opportunity of a Generation

I think that the insurance corporate landscape is going to change - substantially - over the next decade. As the baby boomers move on into greener pastures, the products that sell will change, and they'll change fast.

Business as usual isn't going to work for insurance carriers. The old product-development life cycle (distribution asks for it, marketing creates a concept, actuarial prices it, IT says it can't be done) will result in carriers missing out on their share of as much as $41 TRILLION dollars that is changing hands.

If you can't get new products up quickly, and you can't squeeze out costs, and you're letting your strategy get in the way of your tactics, you'll miss the whole thing.