Based on Life and Health Advisor – Berube Interview

The middle market has always been a large and attractive target for the financial services industry, indeed for many industries. The challenge has been in the delivery: how can you deliver products to the market at a reasonable cost?

With products like life insurance, which have traditionally had a higher than average cost of distribution, the challenge becomes even tougher. How can a middle market focused life insurance company manage the cost of distribution to maintain an acceptable margin?

Ed Berube is the CEO of FUTURITY FIRST Insurance Group founded in 2007. FUTURITY FIRST is a nationwide, independent career distribution company focused exclusively on the middle-imcome market Berube’s company has taken an old distribution idea, the career sales model, and retooled it to work in today’s hard to penetrate middle income marketplace. He spoke with LIFE &Health Advisor about the real size of this market niche, the viability of reaching it and the need to reestablish the idea of a local, community-based agent who is motivated and equipped to make the system work.

L&HA: When did you first conceive FUTURITY FIRST as a solution to capture the middle market?
EMB: The idea has been with me for a long time, and it slowly developed through my experiences with three previous companies. I spent my first 22 years with Connecticut General/CIGNA, where I learned the career agency business from the ground up as an agent, branch manager and ultimately a home office executive, albeit in the high net worth market.

From there I joined AIG in their international life division helping them develop and expand their middle market, career distribution model worldwide. Most recently I led Bankers Life and Casualty Company which focused on the senior middle-market. I believe my experiences at these three companies molded the perspective that I now have of career distribution and the middle market.

L&HA: You’re trying to build a career distribution with FUTURITY FIRST. How do you do that in a marketplace so heavily dominated by the brokerage channel?
EMB: We are an independent, career agency distribution company. The key word is independent, which means we are not owned by, part of or aligned with any insurance manufacturer. This gives us the opportunity to partner with the manufacturers that we choose, that best fit the product portfolio we determine we need for this market, building what we feel is a "best-in-class" product portfolio. On the other side of it, though, we run a true career agency operation. Our agents are employees of FUTURITY FIRST They receive compensation and benefits from the company, and they are trained, supervised and supported like agents in any career system. We think this provides the best of both worlds to the advisor from the standpoint of training and support, and to the client who is provided a broad array of products from which to choose.

L&HA: But why a career model?
EMB: I’ve always thought it was the best model, except for the lack of independence which typically requires the career agent to give his primary company the “right of first refusal on all product sales. This can sometimes run counter to what is in the best interests of the client. Otherwise, the career model has always held the greatest appeal for me. It is the best system to provide direct training, and support to agents.

L&HA: Whom do you target to recruit?
EMB: There are, generally speaking, three places from which to recruit agent prospects. First, there are unlicensed, inexperienced people, the classic prospects for career companies. Next,there are what I refer to as “savvy survivors,” agents in the business one to five years, who have proven that they can succeed, but have concluded that they need more from their present company to take their career to the next level and to better serve their  clients. The third type are agents with five to 15 years’ experience, seasoned veterans who are self sufficient and who value their independence. Most brokerage companies focus on this type. Our primary target is the “savvy survivor”, the agent who values training, sales, marketing and prospecting support.

L&HA: Is that a big enough pool of prospects, given the fall-off of new career recruits overall?
EMB: The numbers are certainly off, but LIMRA reports that career company recruiting has actually rebounded a bit. There are as many as 100,000 possible career agents in the system in any given year. Our goal is to build an organization that is about, three percent of that.

L&HA: The biggest hurdle for the career system has been the heavy costs of training followed by a staggering attrition rate, fairly estimated at 80 percent or higher. How do you approach this challenge?
EMB: I would argue that the underlying cause of those statistics is the fact that the typical career company recruit is an inexperienced, unlicensed agent, where the learning curve is greatest, the turnover highest, and the expense factor heaviest.

Recruiting agents with one to five years of industry experience changes these statistics dramatically. LIMRA data clearly shows that when an agent succeeds past two years the retention rate improves significantly. At the five-year mark it improves even more reaching 60 to 70 percent, compared to the 20 percent or less for inexperienced recruits. And the benefit of much higher retention is not just financial. It is also environmental. Our goal is to build a nationwide network of community-based branches housing experienced, long-tenured financial services professionals. We want to be viewed within the community as a reliable, stable resource for traditional life, health and annuity products We think this kind of stable agent sales environment is one that most appeals to our middle market prospects.

L&HA: The attraction of this business has always been the prospect of independence coupled with an unlimited income potential. Does that still exist?
EMB: Certainly. For many agents, however, independence does not mean operating on their own, responsible for everything: support, training, prospecting, administration, not to mention a monthly lease.

The independence that is important to many agents is the independence to provide their clients with whatever products are necessary to meet the client’s needs, an open, high quality portfolio of products. As for income potential, I believe there are two key drivers. First is the agent’s ability to get in front of enough qualified prospects on a regular basis; and second is the agent’s ability to close sales. At FUTURITY FIRST we have worked very hard to provide our agents with the resources and support to address each of these areas.

L&HA: How hard is it to capture middle market business, which has been characterized as low-premium, low-margin sales?
EMB: We define our market based on household income from $40,000 to $200,000. In the age group 45 to 75, there are about 40 million households in the United States in this income range. The bulk of the market falls into the $40,000 to $100,000 range, all with very substantial needs for life, health, annuity and long term care solutions.

The premiums that this market spends on insurance, while small compared to the high-net-worth market, are still significant - from $500 to $2,000 per case. And the margins on this business are often more favorable than those generated from the sale of high net worth products. The challenge, as you noted at the outset, is managing the cost of distribution. As a company, we need to provide our agents with  the kinds of products,  services and support  they need to grow their business and to do it cost effectively. This benefits them, benefits their customers and in the end benefits us High quality products, high quality support, high quality agents, leading to large amounts of middle market sales - that is our model for success. P.E. Kelley

June 2008