The Supreme Court decision, Barnett Bank v. Florida Insurance Commissioner, has created a plethora of new partnerships. The very day the Supreme Court allowed national banks to sell insurance, the banking industry's long-range plan to initiate partnering within the insurance industry became activated instantly.
Changes in the rules of the game-for both the banking and insurance industries-have been accelerating. With the mergers of several megabanks, the remaining banks have recognized that to remain independent, they need to open new sources of revenue and better utilize cost-saving technology. Many in the insurance industry, companies and agencies alike, have been paying careful attention to the lessons being learned by our banking counterparts. Perhaps agencies don't have as much excess capital or the polished balance sheets of many banks, but they do possess one tremendous advantage: a solid record of sales experience.
An agency's desirability as a bank's partner increases with the extent of its success in sales. These new partnerships may be the right fit for some, but many of the agencies that we've assisted since the early 1980s are adamantly telling us that they prefer to remain independent. From a product perspective, many agencies-particularly those active in Life insurance and annuity sales-will now find that they're directly competing with highly capitalized banks, which are using sophisticated sales automation systems linked with their huge bank customer databases.
THE INDEPENDENT AGENCY'S ROLE
In a recent survey conducted by the Opinion Research International Corp., 'New Buyers of Insurance Products,' four in 10 consumers are likely to consider purchasing insurance-Homeowners, Auto, Life, or an annuity-from a national megabank. Yet only one in 10 has actually done so thus far. In all likelihood, unless independent agencies take some accelerated proactive marketing measures of their own, that statistic will begin to change in favor of the megabanks.
Instead of considering the Barnett Bank decision a setback, let's celebrate the fact that the decision actually leveled the playing field between independent insurance agencies and banks. Now, as a result of recent mergers and acquisitions of banking institutions by insurance companies, many agencies have access to traditional banking products.
But not all agencies represent an insurance megacompany with banking products in their portfolio. Considering the agency profile required for an appointment with a megacompany, many agencies will never obtain access to those banking products. It's those agencies, the ones with clients that depend on them for advice, who know that the new playing field isn't very level.
What type of proactive measures should independent agencies consider? Establish a partnership with a bank? Allow the agency to be acquired or merged with a bank? Perhaps if we can't beat them, we might want to consider joining them-but not join in the traditional sense of the word.
GETTING SOME OF THE FINANCIAL SERVICES PIE
While serving on the board of directors of Traders Financial Corp., a lending institution with international correspondent connections, I learned about The American Dream (TAD). This product was being previewed by a major Life insurer that didn't have a direct connection with a lending institution. During a discussion on how the Life company planned to train its agents and market TAD, I recognized what a valuable product TAD would be for independent agencies.
For an agent, TAD is a perfect bridge between setting up a client's Life insurance program and helping them begin an investment program. In the instance of a debt-ridden customer with a 30-year mortgage, this program would make them debt free (including their mortgage) in less than 10 years-and at the end of the remaining 20 years, would accumulate more than $1 million in investments.
A NATIONAL PROBLEM
When querying clients about Life insurance in your annual client reviews (if you don't write the client's Life insurance already and there's no record of who does), you probably ask, 'For the record, who's your Life insurance agent? How much insurance do you have on yourself, your spouse, and the children?' The answer may be, 'Well, you're my agent, and the only Life insurance I have now is through my employer. I know we need more, but we just can't afford it right now.'
Sound familiar? All too often, clients truly don't have the money to buy adequate Life insurance. They may even be college-educated professionals who live in an upscale neighborhood, have a place at the shore, and own a late-model SUV and a luxury sedan. To maintain this lifestyle, they may have accepted several of those appealing offers in the mail from credit card companies offering high spending limits and low introductory APRs-and have maxed out the credit limits on their credit cards!
If so, they're not very different from many Americans. A recent Andrew Tobias article, 'Take Control of Your Credit Cards,' says that in 1998, more than 3 billion credit card offers were mailed out-averaging more than 30 to every household in America. The average cardholder has 11 cards! Household credit-card debt has more than doubled in the last six years. In fact, personal bankruptcies reached a record high of 1.35 million in 1997, about eight times the rate in the Great Depression. The Consumer Federation of America's executive director, Stephen Brobeck, calls dependence on high-interest credit 'the mother of all consumer problems.'
In September 1998, the U.S. Commerce Department reported that for the first time since the Depression, Americans are spending more money than they're earning, driving the personal savings rate into the negative zone. But unlike the 1930s, when hard times put savings out of reach for many Americans, the new outbreak of consumer mania and credit card usage reflects an ebullient stock market that has made people feel wealthier and more willing to trade in their tomorrow for today.
Thanks to the stock market, consumers have played a pivotal-and increasingly precarious-role in preserving the economic expansion that's in its ninth year despite economic shock waves from overseas. Although consumer confidence has fallen every month since June 1998, many Americans remain optimistic enough to spend all their wages and then some. 'What it says, basically, is that Americans love spending money-whether they have it or not,' says David Wyss, chief economist with Standard & Poor's.
However, with the heavy clout of the banking industry currently being exerted on Congress, bankruptcy laws may well tilt even more heavily in favor of banks and credit card companies. It might not be in a lending institution's best interest to have debt-free clients. (Isn't a debt-free client of a lender an oxymoron?)
By contrast, it is in an agency's best interest to observe the pledge of its mission: primarily to meet the financial needs of agency clients. This is where TAD comes in. TAD is in perfect harmony with that mission. Independent agents can get access to TAD and gain the ability to rescue clients in debt. And TAD works on the same sound financial principles that lending institutions have always had-but might not observe.
STEP ONE
So how does the TAD program work? When a client qualifies as a TAD prospect, the agent completes a one-page Application for Information. From the facts on the application, the professionals at Traders Financial Corp. (TFC) begin by creating credit accelerators. An accelerator is a margin created for the express purpose of paying off high-interest debt.
TFC uses a combination of methods to create accelerators. Jon Conriquez, president and CEO of Traders Financial Corp., has more than 30 years of experience in the real estate, insurance, banking, and lending industries, and has served on many boards, including the nonprofit Consumer Credit Counseling Services (CCCS). Under his leadership, TFC offers a product unlike that of any other lending institution: a debt-management program in harmony with the objectives of CCCS, working and negotiating with creditors to create accelerators for debt-weary Americans.
STEP TWO
Those accelerators are set in motion when the client refinances to a TFC mortgage. With highly competitive interest rates, creative financing, and experienced negotiation, a margin of several hundred dollars per month can be created. That margin can then be used to accelerate the payoff of high-interest debt. This follows the procedure outlined by Gary Belsky in his Money article, 'Win Your War Against Debt': seek professional help first, and then borrow creatively, refinance, pay high-rate debt first, consolidate, and negotiate.
STEP THREE
One of the most important keys in the TAD process is the administration of the accelerators. The TFC management team recalculates the client's debt and payment schedules in the client's favor instead of the client's creditor's. TFC's nationally recognized Debt Service System automatically goes into action, meeting the mortgage- and consumer debt-retirement schedules, disbursing monthly Life insurance premiums, and passing the accumulation of accelerators into the client's investment account.
An independent agency's expertise is important when placing Life business with a represented company while fully earning the commissions. Additional agency income is earned when the agency rounds out TAD for their clients by setting up the client's investment program. An important residual benefit for the agent is that existing clients are retained for the long term-and are good referral sources for their friends and relatives who have similar financial and Property/Casualty needs.
The agency's role in the TAD program is to identify clients with a need, complete the Application for Information, and then be available for possible follow-up questions and signatures. To be eligible for the $700 finder's fee paid for each referred and approved loan, agencies must complete a one-day training program and be granted a TFC agreement.
Independent agencies really don't need to 'join 'em.' They will indeed 'beat 'em' by continuing to take the high ground (working in their clients' interest), defend their long-held position, and strengthen their arsenal of unique new products.