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Achieving Balance on the Financial Highwire

Traditional life insurance and annuity companies are no more, and gone with them is the way full-service brokerages have handled their greatest assets: their customers. The issue of how to best treat your customersboth the ones with the modest investment packages and those on the top endis the subject of a recent research note prepared by TowerGroup senior analyst Cynthia Saccocia.

Theres been a significant growth in these [financial services] companies as they venture into other financial instruments beyond traditional insurance products, says Saccocia. As a result, these companies are dealing with a wide variety of customers. Insurance-owned broker/ dealers employ over 150,000 agents across the country. If [the agents] were able to hone in on this opportunity, they certainly would dominate the financial services marketplace.

To accomplish that, though, agents and carriers need to focus on how to deliver advice services. Saccocia believes there are two important focal points of the issue. First, she asks, how do you develop these [advice service] capabilities at the lower end of the market and offer a service-oriented component that is sort of an Internet-based activity?

As the investor increases in affluence, though, the needs become more complex. That involves additional support, either through a call center or taking it to the next step, which is the face-to-face relationship and having the insurance agent act as a financial adviser, she says. If you can manage these three distribution channels [Internet, call center, financial advisers] and establish some sort of customer-centric view, you can reduce your operating costs because you are channeling customers to manage accounts through all three venues.

Insurers with technological acumen can gain a competitive advantage by leading customers to more economical advice services, Saccocia asserts. That technology needs to seep down from the carrier through the agent for it to be successful. If agents become accustomed to using a Web services portal, they may train their customers to use service-oriented features on the Internet as well, she says.

She believes it can start innocently enough through the delivery of an e-mail and by attaching a link to the e-mail that can lead the customer to certain account management activities on the insurers Web site. You try to streamline the movement ofthe customer, she says. Sometimes that means face-to-face support for activities such as doing an annual financial checkup or cross-selling products. Usually, those activities are directed at customers with high-volume accounts.

Important decisions will have to be made in the coming years as baby boomers prepare to retire and need to roll over retirement accounts. Estimates are that by 2010, retirees will make up 13.3 percent of the U.S. population. Many of these retirees have become used to self-service functions over the years, but the stakes at retirement time are even higher. Are they still going to do some of their own self-management and seek advice services as needed? Saccocia asks.

The advantage insurers and customers have in advice delivery is that the technology is not terribly complicated, according to Saccocia. The Internet is a very viable distribution channel for insurers, she says. The biggest challenge for insurers is not to alienate their primary distribution channels, which traditionally have been, and remain, the wirehouses, broker/dealers, banks, and agents, both captive and independent.

Of course, in the world of technology, many clients may no longer even have agents looking out for their needs.How do you retain those customers? Saccocia asks. The answer will become more apparent in the not-too-distant future. Insurers reluctant to invest in innovative technologies to advance an advice-delivery model will find short-term savings are likely to result in long-term pain.