AIA: The customer business
Distribution, the perennial challenge of insurance services. The model of more recent years is the adviser group, and as AIA New Zealand's Head of Distribution and Marketing Darrin Franks explains, some comparisons with the real estate industry highlight what will separate the short-term players from the lasting success stories.
Friday, July 1st 2011, 9:00AM
by Darrin Franks
The battle for distribution that has been going on in New Zealand since the mid-1980s was once the domain of the old guard - names such as National Mutual, Australian Mutual Provident Society, Colonial Mutual, and the now quaint-sounding Government Life Office. With tools like agency development loans spawning terms such as ‘golden handcuffs' - essentially, large cheques written with few or no conditions other than return of capital and production - they focused on protecting their greatest sales assets.
The game was simple. They who produced the most were the winners. On the face of it, this was exclusively about the top line, with no obvious investment in or view to the long term. Distribution domination was everything. Not surprisingly, it was all rather unsustainable, and collapsed.
The problem with the model was that it was based on high sales achievers, and you can't rest an entire industry on that: it's impossible to keep everyone happy all the time, and attempting to control salespeople comes at a cost that no business can pay indefinitely, especially when a more youthful competitor emerges.
The growth of this model's replacement, the independent financial adviser market, has led to the rise of organisations that consider themselves to be distribution companies or groups.
Ironically, they face a similar challenge to the old guard - that is, the challenge to constantly demonstrate value to their members and retain the performers. It's not uncommon to hear complaints in this vein: last week Group X had 100 advisers, but then Group Y talked to them and 14 advisers have this week made the move over to Y. Therefore, X has to woo Z's advisers to rebuild up its own member base.
Yet others believe an entirely new group is the way to go, against a backdrop of mergers and acquisitions where scale seems necessary to support the financial structure and offering . . . and so the merry-go-round spins on.
A good analogy is the real estate industry. An agent I met late last year has since switched to a competing firm, the third she's been with in four years. Why? Because she's a high-volume seller who will move on if she doesn't feel rewarded. She might go to the agency down the road who agrees to pay her 50 basis points more on a sale.
There will always be such players, and there is a place for them. But others are looking for something more than the bottom line, and smart distributors are the ones who respond to them. The clever groups transcend cash - they focus on building culture and demonstrating their value proposition to their members, so members like what they are part of and take that proposition proudly to consumers.
In fact, retaining good performers is about more than money. For some, what makes a difference is the chance to have some skin in the game, playing a management or governance role.
Offering such people a larger business environment instead of a sales-only one will be the panacea for some. Others will want to stick with sales. Distribution organisations need to accept that there will always be those who are about the bottom line, decide as a matter of principle how far they are prepared to chase them, and evaluate the sustainability of their financial model.
Those who survive the distribution battle will be those who depart the battle in favour of focusing on serving the consumer. They will be those who articulate and demonstrate their value proposition, and have the intestinal fortitude to say goodbye to the egocentric game of one-upmanship and the supposed value of scale, because they know they can attract and retain good people who buy into the culture and consumer proposition.
Already, some are doing this very well, not racing for scale of distribution but looking for quality, consistency and a cultural fit. This makes it easy to transfer the proposition to consumers and develop a robust business, without the distracting sound and fury of battle. Some of what the old guard learned in the 80s is coming through.
These companies are dealing effectively with the value chain. Rather than devoting most of their energy to propping up their end versus competitors, they're determined to work without a dependency, improving their own and the consumer's lot. They know what it takes to run a distribution business, to build a sustainable culture, brand and revenue stream, and to articulate the value proposition properly to the right audience.
The lesson? Battling for distribution is a fool's errand. Dr Ian Brookes told advisers at the recent PAA conference that they were in the customer business - always. Get that bit right and the distribution will follow.
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