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Success In Insurance Sales - Restructuring Of Sales Force

Success In Insurance Sales

We see rejuvenating sales forces as the number one priority for most established insurance companies in Asia, in particular the local incumbents. However, it is also probably the most difficult endeavor for them, since this involves facing up to a lot of legacy issues, and potentially challenging some highly engrained cultural values at these companies. The pace of these changes reflects the resolve of the top management.

There are some encouraging signs. A few of the large incumbents have started to hire new, better-educated agents and provide them with improved training while gradually eliminating unproductive sales people. Some of the bigger players in Japan and South Korea have started to cut down the size of their housewife agency sales forces.

One of the biggest challenges in building a more sustainable agent channel is to standardize the way it operates. Sometimes these sales forces, especially in countries with large geographical spreads, look so different from region to region that they give the impression that they belong to different companies! This is due to the fact that during the ramp-up period, the entrepreneurial branch managers each dictated the direction and culture of the sales force in their region. However, without standardization and a sharing of best practices across the organization, it is very difficult to improve beyond the initial buildup. 

These sales forces are also extremely vulnerable to the turnover of their founding managers. Tough decisions will have to be made as standardization takes away some of the local flavor. In extreme cases, it may even involve removing some of the founding managers and agency leaders in order to direct change.

A restructuring program typically is designed around four key elements: 
(i) best practice agency management, 
(ii) improving the quality of recruiting; 
(iii) systematic improvements in agent productivity; and 
(iv) an overhaul of the incentive system. 

This kind of program has been proven many times in mature markets, but nowhere at the scale of some of the Asian sales forces. Implementing such a program in rapid growth markets, for hundreds of thousands of agents, is a unique challenge.

Part of the restructuring involves more rigorous management of the agents. Since agents are paid entirely on commission, it has long been the tradition to "leave them alone." However, in order to upgrade the agents' skills and improve their productivity, it is important to start managing these agents in a more systematic and professional manner. For example, even the simple task of getting the agents to show up more frequently for reviews and morning meetings runs into fierce resistance. This often brings into conflict the "old guard" versus the "reformers." Given the large resistance of the agents to change, their behavior, and the management's fear of alienating the top producers, a lot of change programs never get off the ground.

Improvements in the sales force model also entails finding better recruitment methods and abandoning the practice of simply recruiting large numbers (which used to mean employing anyone who walked through the door). Finding better qualified agents also involves fundamental reassessment of compensation (especially base compensation), as well as training in the initial ramp-up period.

Furthermore, as the quality of agents improves and productivity rises, there is a counter process of reducing the number of unproductive, part time agents, many of whom rarely sell anything and have other jobs. In many cases, up to a third of the overall agents could be part-timers, which creates a significant challenge since in absolute terms, their contribution is still quite substantial.

Finally, the incentive system is often purely top line and growth focused - with little incentive for pulling the improvement levers laid out above - and does not reflect the profitability margins of individual products. Given the high share of variable pay and the enormous responsiveness of agent forces to changes in the commission structure, this is a highly sensitive topic. The risk of getting it wrong, thereby endangering growth and losing top producers, has led many companies to shy away from touching the commission system. Yet, without this any substantial progress in the transformation program is unlikely. In fact, we see a lot of commission systems that continue to reward agents who sell large amounts of barely profitable products.

Revamping the sales forces will take years to implement. Radical change is probably unrealistic - what is required is continuous improvement that becomes part of company culture, There are no silver bullets for upgrading a large sales force and the process is extremely painful as difficult decisions need to be taken on legacy issues. It may even involve a temporary dip in revenues. The likely winners are those players who adopt a long-term perspective to ensure the sales forces that have served them so well in the past continue to be a strength of their strategy for the future.

Developing the Next Generation of Agents
The restructuring of legacy sales forces is likely to be a long-term exercise and the traditional sales forces will largely remain focused on the mass market. Therefore, to capture the fast-growing, affluent-customer segment, a new approach is required. New sales forces that can target this segment with a more professional advisory approach and with a larger arsenal of financial products are likely to emerge and grow very fast. This requires recruiting agents with higher quality backgrounds and providing better infrastructure support.

An example of how this can be achieved comes from Germany where MLP has built a sales force that targets specific niches of affluent customers. For example, MLP recruits agents from specific professions, like doctors, who will then cater mainly to doctors and others in the medical field. By having a sales force specialized in the same profession, MLP has managed to capture a large market share within these highly valuable segments since its sales force has the unique credibility and capabilities to understand and connect with their target segments. This model has been very successful, and provides a good example of how to develop a more professional and highly targeted sales force.

We anticipate that a few insurers in Asia will be successful in developing much higher quality, advisory sales forces that will be able to penetrate deeply into the more affluent customer base. While the scale of such sales forces will be small compared to the traditional, mass market agency forces, the quality, and thus value, of such sales forces will be significantly higher. As such, one can anticipate much greater diversity of life insurers as they each develop their niches in various customer and product segments.

The affluent segment opens up an opportunity for newcomers to the market who cannot, and probably should not, replicate the model of the large local incumbents if they want to be among the winners in Asian life insurance markets at the end of the next decade. But even some of the large local companies should take a close look at this opportunity and consider setting up a separate channel to capture the affluent customers in a more systematic way. As the incumbents restructure their legacy sales forces, creating new, high-quality, agency forces alongside could be an effective shortcut to addressing the fast-growing affluent segment. This is not easy though, since the buildup of such targeted sales forces is slow and their financial impact is insignificant in the beginning, thereby making it very difficult to get the proper attention during the development stage.

Channel conflicts will surface with existing sales forces that also have some agents serving affluent customers. Long term though, this initiative may well be one of the most important investments an incumbent insurer can make today. To find out more, you can check out Success In Insurance Sales.