Martin Werth
How many people does it take to write a life policy?
21 April 2009
We all know the joke about how many xyzs does it take to change a light bulb? In the life protection industry this has a more serious side - how many adviser and insurer staff does it take to write a life policy?
The short answer, in most cases, is far too many...
Research we carried out as part of our development showed significant disquiet amongst advisers. Issues identified were -
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Adviser back office costs were increasing as they had to manage process shortcomings, including chasing and collecting ever increasing provider information, which often resulted in repeated loops from customer to adviser to life office.
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NTUs were significantly higher than for investment products, in part due to the extended on-risk duration and changes to terms, which represent a high wastage cost for adviser and provider. Levels of 30% were not untypical.
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The on-line business submission linkage from quote portals (or data capture forms) is poor and requires significant dual keying / re-entries.
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Provider systems are invariably unreliable, inflexible and slow, which means advisers need work-arounds to manage the process. Invariably they only work for simple cases and where additional information is required questionnaires are sent manually.
What is the true cost to an adviser of dealing with different insurers? The standard measure of value is commission. However, this is a top line measure, and alone is no measure of bottom line contribution. Every life office has its own strengths and weaknesses and the costs of dealing with each is different. Advisers need to better understand the real costs of working with different life offices. The bottom line picture may be very different from the top-line.
The easiest analogy is to consider commission as a currency. Of course we know that one pound of sterling is worth more than one dollar (at the moment - although not as much more as it used to be!), but is 150% Lautro from life office A worth more or less than the same amount from life offices B, C and D? The answer depends on many factors that we don't measure and the answers may be truly surprising.
Unfortunately, converting top line commission to bottom line profits by life office is not easy, but that doesn't mean it should be ignored. There are some simple indicators -
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NTUs - Amongst other things, variance between NTU rates reflect the time taken or inconvenience of dealing with different life offices.
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Staff Costs - the cumulative end to end time taken by advisers and their support staff will reflect differences between insurers' processes. It is also worth noting that this can introduce bottlenecks. There is also an opportunity cost, if it results in more back office rather than customer facing resources.
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Debt finance - another measure is the cost of financing working capital on policies sold where commission has not been paid.
Any analysis needs a health warning. Some life offices get easier to accept applications than others, so a simple measure of total business could be highly misleading. In fact some life offices deliberately seek simple STP business with sharp rates, and poor manual processes. This doesn't mean they are more efficient. Clearly simple business is cheaper to write and therefore the increased margins justify more commission.
The percentage of STP cases completed is critical. If the adviser could push up STP rates from say 40% to 50% this could shave significant time taken to do business and also reduce NTU rates.
Without a clear understanding of the cost of dealing with each insurer, advisers cannot optimise their profitability. The critical measures are -
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Percentage of sales that complete.
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The total staff costs (end-to-end) per completion.
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The average time to complete the sale.
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The commission per completed case.
It is important to measure from sale to completion. This should take into account any changes to terms, start dates, wet signature chasers, etc, including all the endless calls.
The conversion rate is then: -
Marginal Cost of Sale = Commission per completed sale - (S Staff Costs per completion + Commission * Borrowing charges per day * Days to complete sale)
It is worth noting that adviser's organisational structure may have evolved out of papering over insurer cracks and this may be a factor inhibiting its growth.
The end goal of this analysis would be for advisers to understand how to convert commission into bottom line value. I believe that understanding this could transform advisers' financial models. Whilst any analysis will initially be flawed, without a measure and target, things will not get better. Not enough work has been done in this area, which means there are significant wins to be made. In a truly e-business world the adviser should need very few back-office people and the vast majority of business should be completed in one stage at the point of sale.
In summary - we don't know how many staff from advisers and insurers it takes to write a life policy, but it's too many. In a truly e-business world the adviser should need very few back-office people and the vast majority of business should be completed in one stage at the point of sale.
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