Changing channels: agents are likely to join independent marketing organizations, which offer greater commissions, but less service. How will insurers respond to demands for service?

When the rate of change outside exceeds the rate of change inside, the end is in sight, said Jack Welch, GE's former chief executive officer. If external change means meeting the analysts' quarterly expectations, then the Welchian dictum applies to the life insurance industry as well as others.

In fact, it's something of a perfect fit, particularly since life insurance sales have been painfully flat for several decades and any upward blips short-lived. Combine this sobering sales environment with diminished investment income, and the watchers of Wall Street have you in their sights.

Inevitably, the financial fingers point to reducing costs. Insurance companies began turning loose their career agents by the tens of thousands. The distribution channels were changing.

The highly entrepreneurial brokerage general agents quickly seized this channel change as an opportunity to serve the ranks of the newly liberated agents. Long regarded as second-class citizens by the life insurance industry, even though they found solutions for cases the mainline companies cast aside, the BGAs morphed into sophisticated back-room operations that allowed the companies to shed the cost of expensive support services.

Over three decades, the BGA channel became the pipeline for more than 50% of life insurance sales.

But the speed of change was catching up. The agent corps began to age and recruitment declined with the loss of the once quality training provided by the career companies. Then the Internet came along and attracted players who hoped they had found the low-cost, efficient product distribution channel.

The banking industry took notice and began distributing life insurance to their customer base. With enormous amounts of financial information at their fingertips, banks became a relentless marketer of life products.

At every step of the way, there was no way to escape the pressure to continually enhance "shareholder value."

But yesterday's solution is never good enough. After three decades of BGAs acting as the primary intermediary between agent and company, some began looking for a way to attract more business by increasing agent compensation.

And that's what's happening with the emergence of what are sometimes called independent marketing organizations, or IMOs, that have contracts with companies and license agents the same as BGAs. That's where the similarity stops. Most IMOs offer no support services so that agents must deal directly with the company. By giving up service, they receive higher compensation. But this raises crucial questions. Are the companies prepared to handle a vastly increased service load? Didn't they encourage the formation of BGAs so they could focus on producing product and eliminate support services?

As might be expected, some BGAs are transforming themselves into IMOs or becoming hybrids.

Whatever else it is, "creative destruction" is at work finding new solutions. So, where does the life insurance industry find itself today?

* The IMO model will grow rapidly as agents take the path to higher compensation.

* Life insurance companies may find it difficult to provide a level of service agents have come to expect from BGAs, resulting in either dissatisfied agents or higher operating costs.

* BGAs will change, offering a broad menu of services from which agents will pick and choose with compensation based on their choices.

* The Internet will drive change as the primary source of service and for reducing costs. While dependence on personal contact exists, it will diminish as electronic communication with problem-solving capabilities becomes more sophisticated. Resources with the best electronic solutions will rival those with the best people.

* Agents will be changing, too. The current trend suggests there will be fewer agents, with only the most competent surviving.

Finally, there are the consumers, the ones who will gravitate to whatever channel meets their specific needs, economic status not withstanding.

Will they go to an agent, the Internet, an association, a bank or even a kiosk to buy life insurance or will they fail to see the relevance of life insurance all together? This is a question that deserves more attention than the bottom line.

In other words, Jack Welch is right.

Ronald D. Verzone, a Best's Review columnist, is president of United Underwriters Inc. of Exeter, NH. He may be reached at rverzone @unitedunderwriters.com.