For any active sales agent, the independent marketing organization (IMO) can be an effective ally in finding suitable products and closing sales. By providing training, marketing solutions, and back-office support, these companies can help a producer throughout their career.
But who’s really behind this advice and support? In what may be a growing number of cases, the IMO that provides information on various insurance companies whose products they offer is, in turn, owned by one of those carriers. Some believe this can have serious consequences for marketing organizations, agents who work for them, and their clients.
Should the issue of company ownership concern those agents looking for truly objective advice, or is it a relatively harmless situation that has no effect on an IMO’s ability to dispense valuable information?
For some time, industry professionals have observed that some carriers purchase IMOs as part of a strategic business move. However, Jack Chiasson, executive director of the National Association of Independent Life Brokerage Agencies (NAILBA), hesitates to call the process a “trend.”
“I’ve heard it’s something that’s been going on for a while, but I haven’t heard anything (indicating) that it’s a big wave that’s overtaking the industry,” he said.
Regardless of just how frequently such acquisitions occur, however, Ron Rawlings, principal and founder of the IMO Dallas Financial Wholesalers, believes that those IMOs that are carrier-owned may not be truly objective.
“It’s naïve to believe that this is not true in the industry that I work in,” Rawlings said. “How can an independent marketing organization truly be independent if they are owned by an insurance company?”
Rawlings said the issue stems from shifting distribution models in the insurance industry over the past few decades. Prior to the mid-1980s, agents primarily worked for just one insurance company, and those insurers exerted complete control over which products their producers recommended to clients.
But increasing costs caused a change in the industry: Insurance companies chose to hire agents as independent contractors rather than captive employees, sacrificing their previous control. Independent marketing organizations began to fill the distribution gap, creating a third-party entity between insurance companies and the agents who sell their products.
For the agent, that meant discussing different scenarios with independent companies that have access to a full spectrum of products and expecting an unbiased recommendation along with dedicated sales support. But when insurance companies began purchasing these marketing organizations, the carriers started to recapture some of their previous control, thereby influencing the agent’s decision-making process.
While he doesn’t like the implications for the industry, Rawlings said he certainly understands insurance companies’ motives and views them as part of a savvy business decision. “For the insurance companies, it’s a brilliant move because they’re getting their bread buttered on both sides,” Rawlings said. “They are reaching back in time, to a certain degree, and controlling distribution again, like they did back in the days of old with career agents — but without the cost.”
Chuck Lucius, a 30-year insurance industry veteran and founder and CEO of the IMO Independent Brokerage, agrees.
“I really do feel that they are disguising a distribution,” he said of insurance-company-acquired IMOs. But Lucius also believes that, from a capitalist standpoint, insurance companies have every right to purchase a marketing organization.
But that doesn’t mean the purchased companies can necessarily stay objective or maintain the “independent” element of an independent marketing organization, he said. The name of Lucius’ IMO was selected to ensure that his own company’s philosophy is clear to everyone involved and to truly separate it from the growing number of insurance-owned organizations. He said he chose the name in order to send a clear message about his dedication to avoiding subjective influences. “I think independence is a good thing. Distribution should be independent,” Lucius said. “Independence isn’t free, but independence is a privilege and you want to guard it.”
Industry impact
In fact, marketers such as Rawlings and Lucius believe that IMOs that don’t guard their independence can have a negative influence on the industry as a whole. Clients expect objectivity on the part of their agents in order to ensure they are purchasing the best product on the market that will meet their particular situation, and a lack of sound advice from their agent can hurt that producer’s standing over time.
Lucius said the same can be true of well-respected IMOs: Once an insurance company takes over these businesses, a great IMO that originally offered a wide array of products can quickly become mediocre. A formerly independent company could begin acting as an arm of the large insurance company that owns them, and in many cases, the entrepreneurs who founded the IMO subsequently leave the business, only to be replaced by insurance executives who had nothing to do with the IMO’s original success.
Still, Lucius believes that the major problem that crops up when insurance companies purchase IMOs is one of transparency — or, more precisely, a lack of it. “The fact that insurance companies own agencies is not bad. It’s not a bad or a good; it’s just America,” Lucius said. “(But) if it’s disguised that they own them, that’s not quite right.” Lucius believes that company-owned brokerages should disclose this relationship to the agents who do business with them.
A rare occurrence?
Douglas Mishkin, chairman of the board for NAILBA and CEO of the brokerage agency Algren Associates Inc., sees the issue somewhat differently than Lucius and Rawlings. He said many insurance-company-owned IMOs are open about their affiliations, and some even feature the carrier in their name. And in any case, he agreed with Chiasson’s assessment that the number of such organizations is relatively small and shouldn’t affect agents significantly.
Brian Peterson, senior vice president of the Allianz Distribution Group, added that agents should not have any difficulty identifying IMOs that are owned by carriers.
Allianz is just one insurance company that has purchased interests in marketing organizations over the past few years, and they are involved with about 10 IMOs to date. The Allianz-owned IMOs, however, do not prominently display the carrier’s name, and Peterson said that decision allows each IMO to retain its ability to work with other companies.
When asked what, if any, constraints are placed on an Allianz-owned IMO, Peterson replied, “Each company retains its own brand identity. Moreover, each organization has relationships with other carriers,” he said. “This enables them to offer a variety of products that can meet their client’s needs.”
Still, the issue was significant enough for NAILBA, the industry’s primary trade association for the independent brokerage channel, to change its membership requirements. Although the group had discussed this issue for years, Mishkin said that beginning in 2008, brokerages that are owned by insurance companies no longer qualify for NAILBA membership.
“Any agency that is owned and controlled by an insurance carrier automatically does not qualify for membership in NAILBA. The reason for that is because we feel the association is (intended) for independent life brokerage agencies,” Mishkin explained. “And being owned by a firm that manufactures the products that we sell, we didn’t feel that met the definition of being independent.”
All applications will be reviewed, and Mishkin anticipates that a few carrier-owned companies will indeed lose their membership privileges this year.
“We don’t have anything against an agency being owned by a carrier,” Chiasson said. “We’re not going to tell anybody how they can and should do business; it’s just a matter of whether our membership committee feels the organization’s status meets our criteria for membership.”
How to maintain your independence
Since marketing organizations are not obligated to disclose their affiliation with a particular insurance company, how can an agent find out if their IMO of choice is truly independent, and what should they do when they find the answer to this question? Rawlings suggests one simple and direct approach: Simply ask.
“A good, probing question would be, ‘What percentage of your firm’s business goes to ABC insurance company? What percentage goes to other companies?’” Rawlings said. If the IMO implies that they do significant business with several insurance companies, agents can then verify that with the carriers themselves. Mishkin also said agents should carefully read any contracts to ensure that they can remain fully independent if they work with an insurance-company-owned IMO.
Can this hurt your client?
Rawlings believes this issue poses a risk to the industry, and it’s the end users — the agent’s long-standing customers. “I would say that the person who gets hurt most directly would be the client, because the client does not receive the benefit of a full array of products.” But he also said that the residual effects of more narrow recommendations can have a significant impact on an agent’s long-term business prospects. Since successful agents depend on quality referrals, a lack of creative solutions may give clients fewer reasons to refer their friends and relatives. In fact, that client might in turn be referred to another advisor who does provide a wider variety of options.
Allianz, however, believes that agents can benefit from these buyouts because the IMOs allow the owner companies to stay in better contact with their carriers. In a general statement on the subject, Allianz said, “An owned IMO is just another way of having a relationship with an independent agent,” the statement reads. “Like with other marketing organizations, it serves as a touchstone for independent agents to obtain valuable information about products, regulations, and key industry initiatives. It is just one of the tools we use to communicate to the field and to keep up to date on industry developments.”
But Mishkin believes that, in the end, it’s the entire insurance industry that suffers. “I don’t think it’s good long term for the industry when the companies that are manufacturing products also control the distribution.”
Michael Murillo is a freelance writer and frequent contributor to the Agent’s Sales Journal. He can be reached at vivamurillo@hotmail.com.