Some say “Change is Inevitable”. What do you think?


Written by Dr. Roger LaVine, VP of Product Development at @VUESoftware

Over the past decade Carrier/producer relationship has evolved with the introduction of Distribution Management Systems (DMS). This slow yet steady progression from homegrown applications that were focused on administration has changed the way producers are managed. Although inevitable, this change may be hard to put in perspective.

Here is a way to visualize and benchmark how a particular company’s agent based systems map to the current state of the industry.

To create that map we need to examine two dimensions. Firstly, there are two fundamental business processes within distribution management,  Agent Life Cycle (ALC), from recruiting to termination, and the Sales Life Cycle (SLC), from marketing campaign to binding. Secondly, the progression of these applications through four stages of evolution:

  1. Data centric
  2. Information focused
  3. Process centric
  4. Knowledge based

Stage 1: Data Centric

As an application’s data and focus evolve, the content is leveraged by higher levels of organization for more strategic purposes.
Years ago, carriers created two separate application domains within the ALC.  Agent/agency tracking databases to provide the data on agents and to track compliance with state licensing and appointing regulations, and simple premium based compensation algorithms that were hardwired into the policy administrative systems.

Stage 2: Information Focused

These legacy systems worked adequately for simple requirements.  However, about a half dozen years or so ago, particularly in the health insurance segment, there was a mounting carrier resistance to agents getting rewarded for increases in premiums (exacerbated by rapid increases in health care cost) rather than selling more products.  At the same time, there was an increase in the use of incentives to compete for wallet share from agencies.  This resulted in a need for more complex compensation plans.

Stage 3: Process Centric

Carriers found that changing compensation structures required building more complex and flexible systems (stage 3 – process systems). They also found that these systems cost significantly more to develop. This opened the door for package compensation systems.  In parallel, the SAAS model came into its own. This started the evolution to package solutions for certain aspects (compensation) of the ALC.

Later  (as in the last four years), other technical changes, most notably, the availability of third party integrations (direct connection NIPR, background vendors, training vendors, FINRA and DTCC) as well as mobility has allowed for automation of onboarding and self-service processes for agents (the second major domain of the ALC). Carriers started demanding an integrated system to handle both licensing and compensation.  Vendors responded by acquiring products and developing suites that Streamlined and automated these processes which led to reduced inefficiencies, a huge decrease in delayed appointment, and increased efficiency in producers being compensated. For the leading companies that evolved from homegrown data/information tracking applications (stage 2) to these new integrated process applications for the ALC (stage 3) there were major benefits e.g. increased productivity and efficiency.

Unrelatedly, the second path of evolution was also occurring in the sales life cycle.  In the last five years, with SAAS, the cost of customer relationship management has declined while the utility has improved, particularly for internal sales management.  Carriers and Agencies started transitioning from old Agency Management Systems (AMS) to Customer Relationship Management (CRM) for the sales life cycle process. However, there has been some barriers to using traditional CRM, such as licensing costs, particularly in the brokerage model.  Many DMS vendors recognized shortfalls in the major CRM packages and are now providing CRM  (“light”) functionality in their agency management products to overcome these constraints. More importantly, these vendors have also embraced SAAS.

So we see automation of both business processes (ALC and SLC) has evolved to the process phase, with some companies reaping the benefits of cost, time and place  of business.  While doing this work, it became clear that both business processes are producer relationship and sales communication centric.  With the addition of mobility it became a natural fit to automate and integrate communications into one application, Distribution Management, using portals to simplify and streamline agency relationships with the carrier.

Stage 4: Knowledge Based

With automation of the ALC and SLC communication processes came new content – comprehensive process and business performance data. Analytics has become the latest frontier in DMS as a byproduct of these two business cycles being automated, integrated and interrelated.

Ultimately, automation leads to an ease of doing business and drives new relationships. Knowledge of what is working and not enhances these relationships, and compensation is used to drives sales or is it sales drives compensation?  In any event, compensation management cements or breaks the relationship. Increased  efficiency based on analytics leads to synergy, partnership and strong relationships.

A quick look at the stages of automation and integration of these two business processes within an organization will quickly indicate where the company fits, both competitively and strategically.  Are they still using multiple legacy systems (stage 2)? Have they acquired packages and automated their workflows (Stage 3) for both business processes (ALC and SLC)?  Has the communication channel been automated with portals leveraging mobility? Is there analytics (knowledge base – stage 4) to build branding and formulate strategy?

The real touchstone, however is: Are they seeing the benefits of being easy to do business with, efficient, and having the knowledge (analytics) and tools required to drive business?


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