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August 12, 2016

RIP to the Idea of ‘Sold, not Bought’

Summary:

Hanging onto this outdated notion has caused the industry to lose focus on the end consumer and shift the focus to the agent as customer.

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Let’s have a moment of silence for the “sold, not bought” paradigm. Before anyone gets panicky, we’re not laying agents to rest, but rather recognizing that sold, not bought is about a mindset that served our industry in the past and that holding on to it for too long is now hurting us.

It’s not about favoring a particular distribution method. Agents can live without this paradigm — and likely be better off for it.

Learning from other paradigms

If people in your company are still having arguments internally about this, let’s first look at what we can learn from other arguments that have died over time. These include:

  • “the Earth is flat;”
  • “the four-minute mile is impossible;”
  • “HIV is a death sentence;” and
  • “Pluto is a planet.”

What’s common about all these arguments? New capability. Somewhere along the line, a scientific breakthrough, a person with new knowledge or a separate discovery caused us to see the argument in a new way. Then we eventually agree on the new truth. It’s time to do the same for the sold, not bought paradigm.

What’s changed?

There is new capability in the hands of consumers that did not exist when the paradigm was created. The modern consumer has so much new capability that the term “prosumer” was invented by Alvin Toffler in his 1980 book “The Third Wave.”

A prosumer is a very active consumer who blurs the lines between professional and amateur and controls information flow, the experience and, even, the sale. Modern companies like Amazon, Apple and Google have done a great job, both leaning into this trend and shaping it.

See also: Paradigm Shift on Cyber Security

As an industry, we have convinced ourselves that nobody wakes up in the morning and wants to buy insurance unless someone makes her do it. This drove the sold, not bought paradigm. It had truth to it in the days when consumers did not have access to information like they do today. However, the prosumer found this concept disrespectful and, perhaps, even arrogant. Hanging onto this notion has caused the industry to lose focus on the end consumer and shift the focus to the agent as customer. We then end up with:

  • Complex products that please a few key sellers but damage the customer experience;
  • A heavy push in marketing strategies that result in expensive incentives and margin pressures; and
  • Compensation models that provide incentives for the wrong behavior and lead to onerous regulations, such as the DOL fiduciary rule.

Opportunity to relearn

There’s a lesson here, but we need to revisit the nature of demand. Economics lessons tell us that there are several nuanced styles of demand, dictated by the nature of a product.

It’s the manufacturer’s job to cultivate demand, manage demand or both. Historically, creating demand was in the hands of the agent and was fused with the sales process. Because of the prosumer’s new capability, the role of demand creation and the sale are now decoupled.

See also: Taking the ‘I’ Out of Insurance Distribution  

For those who think nobody wants life insurance, think again. While it isn’t as highly sought after as beer or shoes, the 2014 study by LIMRA and Maddock Douglas indicated there are almost 19 million “stuck shoppers” (people who intend to buy but the current experience causes them to get stuck along the way) for life insurance. In addition, if you talk to some of the new startups/disruptors in the insurance space, they believe insurance is a bought product, and it is simply their job to cultivate more demand and create a superior experience.

So if we replace the paradigm of “sold, not bought” with “bought, not sought,” we can put the responsibility back into the manufacturer’s hands to cultivate demand, deliver better on the experience and, most importantly, ask ourselves what role advice plays in the new world. Many are pointing to robots as the answer.

But can an industry so deeply rooted in social purpose really operate without humans helping humans? If not, we have an opportunity to reinvent the agent role in a profound way.

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About the Author

Maria Ferrante-Schepis is the managing principal of Insurance & Financial Services Innovation. She has more than 25 years as an executive in the insurance and financial services industry, holding officer roles at Guardian, Prudential and Bankers Life & Casualty of NY.

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