So you want to sell insurance?
Before you can start, you will have to figure out which company to buy it from — a daunting task, given the number of potential providers for any given type of product. But there are some easy ways to get the list of candidates to a manageable size.
For starters, examine the companies' credit ratings, says Eric Henderson, associate vice president and variable annuity product manager at Nationwide Financial. He also recommends checking whether insurance companies have reinsurance.
“Some companies are being very prudent at managing risk, and other companies are being very aggressive,” Henderson says. “I'm seeing benefits guarantees at 5 percent, 6 percent, even 7 percent. That is going to be a red flag in my mind.”
Next, look for signs of stability. The largest companies tend to have a margin of safety because of their diverse offerings. They also tend to have more reserves, long track records and plenty of reinsurance.
By contrast, companies with only a couple of lines of business are more risky because they are more exposed should one of the lines get hard hit with claims.
“I prefer to use companies that are recognizable,” says Stephen Murphy, a financial consultant and vice president of investments at A.G. Edwards in Las Vegas. “I don't want to spend 20 minutes explaining some insurance company you've never heard of.” Murphy, who sells Hartford products, keeps a copy on his wall of the life insurance policy that Hartford Life wrote on Abraham Lincoln.
Of course, wirehouse employees live with a range of choices made on their behalf, but most of those choices tend to be conservative ones. Independents, meanwhile, rely on aggregators. These wholesalers should provide ways to compare policy prices and the safety and soundness of companies. Either way, you still end up with something of a supermarket of companies to choose from.
The next issue confronting you will be rates that you'll charge the client — an important issue to be sure, but one for which you can receive plenty of guidance from the carrier.
After that, you are left with the commodity that is the actual policy. A few companies might help you to set yourself apart by offering extra service to you or to your client, and knowing companies like this can be a valuable way to differentiate yourself.
Murray Gordon, president of MAGA Limited, a long term care insurance agency located in Deerfield, Ill., says that it helps to understand how companies differ in their coverage. “If the person is insulin-dependent, John Hancock may be the only one to offer a policy,” he says by way of example. “You have to know what each company will accept or consider.”
After evaluating companies for safety and soundness and after factoring in the specialties that might appeal to your client base, you are nearly ready to choose a provider — almost.
The last factor to consider is the commission you will be paid on the policies you sell. Commission rates vary from company to company, ranging from as little as 7 percent to as much as 20 percent of premiums. But it might not be worth it to you to choose an insurance provider based solely on fees. Think about the cost to you of making up for poor support and service.
“It's all about ease of use for me,” says Murphy. He prefers the handful of companies such as Hartford or Protective Life that offer a simplified application process. “I am not interested in somebody's medical history,” Murphy says. “I would be horrified to ask somebody about their hernia or whether they have heartburn every night.”
The commission rates at such firms tend to be competitive, if not the highest in the field. But for people like Murphy, the time and effort saved by abbreviated applications processes and other support mechanisms make it easy to concede some minor commission points.
“I could make 15 percent more commission selling somebody else's product if I chose to,” says Murphy. “The commission is not the driving factor. Do I have to do a paper application or can I get away without doing it? That is the critical issue for me.”
He uses Hartford because, in addition to offering policies with no physical, they handle the paperwork and let him track the application process online.
He recently followed on the Internet as a client passed the interview and a blood test. He knew, almost in real-time, when the policy was on its way.
“Now that is awesome,” he says.