The story of insurance sales in the brokerage industry is one of untapped potential.

According to a recent survey by Registered Rep. and The Hartford Life Insurance Co., 69 percent of registered reps are licensed to sell life insurance products, but an informal survey of reps at major broker/dealers shows that relatively few — perhaps 15 percent — actually make sales.

The Rep./Hartford survey leaves little doubt about the source of this disparity: 32 percent of respondents cited a lack of sales training and support as a reason for not selling life insurance. It was the largest obstacle to sales cited by the 751 reps surveyed.

For reps wishing to sell more insurance, there is an option: leaning more heavily on an insurance specialist. They come in several forms:

In-House

Many wirehouses, such as Merrill Lynch, employ insurance experts to help registered reps get through the most complex aspects of an insurance sale. The specialists handle insurance case design, product selection and other details, working closely with the rep.

The Good: Reps get easy access to a fellow employee at his current firm.

The Bad: Having to share the commissions with the specialist.

The Wholesaler

Wholesalers are employees of other firms — generally insurance companies, but sometimes also independent insurance and financial services agencies. The wholesaler typically has a broad background in the insurance business and an in-depth knowledge of his or her company's products. They usually work closely with life insurance specialists and advanced markets specialists to ensure the client ends up with the proper insurance products. This sort of approach is used by Morgan Stanley and Raymond James, among others. Generally the rep is able to contact the wholesaler directly, and might also get help with case design, sales support and implementation.

The Good: The external wholesaler's survival depends on reps, so he will often bend over backwards to accommodate the demands of a sale. Further, external reps are intimately familiar with the products they are selling.

The Bad: The wholesaler's affiliation with an insurance company means he is not impartial when recommending specific products. Also, external wholesalers can be very aggressive.

The Independent Financial/Insurance Company

Sometimes the rep deals with a full-service independent company that has contracts with a number of insurers and other financial services entities. This is the approach favored by Linsco/Private Ledger (LPL). The relationship is similar to that involving a wholesaler, but instead of dealing with several wholesalers representing different insurance companies, the rep deals with one specialist who is familiar with several insurance companies' products.

The Good: This is essentially a hybrid of the first two approaches, so it has some of the best-of-both-world advantages.

The Bad: There is some risk of the “Jack of all trades, master of none” syndrome.

What Does a Specialist Do for the Rep?

This will vary from specialist to specialist, but generally they aim to relieve reps of the hard stuff.

Case Design

The specialist helps the rep gather the facts and analyze the data to determine client needs and objectives. In some cases, the specialist might even go to client/prospect meetings to help with information collection and product presentation. At some b/ds the specialist actually does everything for the rep.

Product Selection

Choosing the correct mix of insurance products is a daunting task. The products must be suitable and affordable, while addressing the identified needs and wants. Again, the specialist is a single source for assistance with this process.

Sales Support

The sales process includes getting the completed paperwork and tracking applications. The specialist is a pro when it comes to this, particularly since he or she often has a personal relationship with the underwriter and medical companies and can expedite things. The specialist can also anticipate and head off problems.

Training Support

In order for a rep to identify client needs and make suitable product recommendations, he or she needs to be familiar with the essential features, advantages and benefits of the major types of insurance. The specialist can help by running classes to train reps on the basics of insurance and update them on the newest products and services.

How to Work with an Insurance Specialist

The key is information gathering — that is, getting the client to tell you and the specialist what he needs. This usually requires delving deeper than when you collect data to set up or update a client's brokerage account.

For instance, an advisor certainly would need to know about his clients' businesses and/or employers, and he would need to know where the clients want to be 10, 20 or 30 years hence. Maybe there is a need for key person, buy/sell or disability overhead expense insurance. Maybe there is a need for life insurance that is not dependent on the whim of an employer.

Beyond this, though, the advisor also would need to know more personal information. Is there anything about the family's medical history that would call for special insurance?

In the event of a death of a primary wage earner, how will a lost income be replaced? Is there a job change in the near future? Are there plans to have (more) children?

As these questions suggest, clients can have myriad insurance needs, some complex, some straightforward. Too often, many of these needs are not addressed, or the coverage is insufficient or inappropriate. Your insurance specialist, wholesaler and/or advanced market specialist is there to help you sift through the raw data, analyze clients' needs, and make suitable recommendations that last and are affordable.

What's in It for the Advisor?

The short answer is money, in the form of commissions, service fees and renewals. Gross commissions on life insurance can range from 40 percent to over 100 percent of the first year's premium payment, and the advisor usually gets a sizable chunk of that money. There are also renewals for the first five to 10 years, and maybe ongoing service fees after that (depending on your b/d).

Funding a buy/sell agreement between two business partners, using $500,000 of term life insurance, could easily generate $500 to $2,000 in net commissions, depending on the clients' ages, health and the commission rate, with additional commissions of roughly the same amount each year if the term insurance is systematically converted to permanent life insurance. If $500,000 of permanent life insurance is used for each partner from the outset, the net commissions could be much higher (again depending on age, etc.) ranging from $1,000 to $10,000 or more. And there are ongoing renewal and service fees for the next 10 or so years.

But there are other reasons to sell insurance as well, starting with its ability to strengthen the advisor/client bond. Frankly, it is much harder for someone to take their business elsewhere when they have to do more than transfer a portfolio of stocks, bonds, funds and managed money.

Last but not least, there is this: Insurance is something that most clients need, and by supplying them with it, the advisor is fulfilling the most important part of his calling.

Janet Arrowood is a freelance writer based in Colorado.

“What type of assistance do you receive in selling life insurance?”
Percent of survey respondents giving each response.
  2004 2005
Product training from life insurer 60% 59%
Product training from b/d 55 52
Complex sales and tech support from insurer 47 50
Needs analysis support from insurer 46 46
Life insurer meets with my clients to explain insurance concepts 31 27
Source: 2005 Registered Rep./The Hartford Life insurance Co. survey