In this Section:

AmeriLife CEO: IMOs Entering an Age of Consolidation

Independent marketing organizations (IMOs) are headed for an era of consolidation. This is happening as insurers look to form fewer but deeper relationships with distributors seeking more scale to access larger amounts of capital, the new CEO of a top IMO said.

The first consolidations are expected among smaller IMOs. But within five to seven years, it’s possible that even large IMOs, sometimes called super-IMOs, will seek to merge with competitors, said Scott R. Perry, CEO of AmeriLife.

However, he said, consolidation among the large IMOs would most likely be a “one-off,” rather than a trend that is likely to affect smaller IMOs. In any case, a merger among large IMOs wouldn’t take place in the immediate future.

“It will likely start with the small ones, and that will keep the industry busy for a while,” Perry told InsuranceNewsNet. “Longer term — five to seven years — we could see some super-IMO consolidation.”

Super-IMOs often represent other smaller IMOs, and Perry estimates that there are between 200 and 400 IMOs eligible to do business with insurers. Other independent estimates peg the number of IMOs in the U.S. at about 350.

No public database exists to track the size and number of IMOs.

Perry, who last month was appointed CEO of AmeriLife, offered his insights into the changes facing the IMO distribution channel. This channel generates tens of billions of dollars in life and annuity premiums every year.

Even as IMOs generate billions in sales, executives are concerned about the industry’s ability to continue selling under the Department of Labor’s new fiduciary rule.

The rule, which raises the standards for investment advice for financial advisors, proposed making only the largest IMOs eligible for a class exemption. This exemption would allow a handful of IMOs to continue collecting commission-based income from life and annuity sales.

One of those annuity sales categories — fixed indexed annuities — is on track for a $60 billion sales year in 2016. About 60 percent of fixed indexed annuities are sold through IMOs.


The World Beyond Table Stakes

The fiduciary rule is the latest example of what Perry called “acute regulation” affecting insurers and insurance distributors. But it would be wrong to lay the blame for all future IMO consolidation at the feet of the DOL rule, he said.

“Consolidation drivers are scale and access to capital, which are necessary to drive value” to agents and consumers, Perry said.

Not long ago, IMOs could get by differentiating themselves through product choices and pricing options alone. But today, the information revolution has put a lot of that data at the fingertips of agents and buyers.

IMOs that offer differences only in product and price — mere “table stakes” in today’s world — are going to find tough going in the future. The reason is that these differences aren’t enough to help differentiate an agent aligned with one IMO from another agent aligned with a competing IMO.

IMOs need to think about offering agents more services around customer relationship and sales lead management, electronic and simplified application capability and data reporting, electronic underwriting, digital marketing, and analytics. These capabilities are available only through robust technology investments.

Smaller IMOs must decide whether to invest in technology platforms on their own or via alliances, partnerships and acquisitions to better equip agents. This is because “all those value-added activities are going to have to be delivered, and those don’t come cheap,” Perry said.

Which is why IMOs need access to higher levels of capital.


IMOs Must Broaden to Survive

Perry said that over time, IMOs have become focused and narrow with a deep understanding of their respective agent marketplaces.

But as IMOs have expanded to take on many of the agent-support activities that insurers used to do, some IMOs have chosen not to diversify. This presents a risk that may come back to haunt those IMOs, he said.

AmeriLife, for example, has a network of more than 120,000 agents in 50 states and annual sales of more than $2.4 billion premium, mostly from annuity and health products. The company is looking to diversify into traditional life insurance.

The company is considering moving “down-age” into the 45-to-60-year-old demographic. This is a change from the 62-year-old and older market where AmeriLife has carved out a lucrative niche and made a name for itself, Perry said.

Insurance company executives have also hinted in conference calls over the past year that distributors are beginning to trim their insurance carrier and product palette. This is bound to favor some IMOs over others.

Perry is only the third CEO in AmeriLife’s 46-year history and is the former chief business officer of CNO Financial Group. He is in a good position to speak about how the IMO market is changing.

At CNO, a holding company for three life and health insurance company subsidiaries and an investment advisory, Perry headed Bankers Life, one of those subsidiaries. He is familiar with the way long-term changes in demography are affecting the IMO intermediaries.


Attuned to Demographics

Members of the Greatest Generation, who fought in World War II, are giving way to the baby boomers taking their place.

Many of these boomers have defined contribution retirement plans and are working toward retirement. They will require IMOs to help agents rethink the way to relate to customers and the way those customers relate to insurance products.

Boomers, for example, are more comfortable with the networks insurers have set up with groups of doctors, hospitals and prescription drug providers. This explains the popularity of Medicare Advantage, Perry said.

Changes in ethnic demographics also will affect the IMO industry.

With its headquarters in a state with a large Latino population, Perry said AmeriLife is planning to increase its commitment to that market by hiring and building bilingual marketing capabilities so that consumers can engage with Spanish-speaking agents.

“If you want to be successful in the Hispanic market you need a Hispanic agent, and if you want Hispanic agents in your IMO you need Hispanic managers,” Perry said.

“You have to get these into your business instead of relying solely on tweaking a product or appealing to the Hispanic market by adjusting your media.”


InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected]

Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at [email protected] [email protected].

More from InsuranceNewsNet