No strings attached: Jackson National champions independent distribution, supported by after-sales service and strong products.

Insurance distribution is a broad subject, and every life insurance company has different views, challenges and opportunities. Jackson National Life Insurance Co. is one of the few companies to decide long ago not to use captive agents. "It's a strategy we developed early on," said Clifford Jack, executive vice president and chief distribution officer. "Since the 1960s, we knew this would be an industry trend. Although we acquired

Life of Georgia last year as a strategic move to broaden our presence in the Southeast, historically our focus has been to work through non-tied or non-captive distribution companies. The industry shift to this model really allows us to focus in the sweet spot."

Jack is responsible for the retail distribution of all Jackson National products through multiple distribution channels. The company's core channels are independent adviser, regional broker/dealer, financial institution and registered investment adviser. It uses a hub-and-spoke system, with the hub comprising all of the shared services, including legal, compliance. information technology, finance and marketing. In an interview with Best's Review, Jack discussed the industry's distribution issues.

What are the distribution challenges facing the life industry in the current environment?

One of the most significant challenges is putting your money into the right areas of distribution. We have a very keen eye toward overall expenses as a percentage, for instance, of our asset base and as a percentage of what we sell in any given year. This cost advantage allows you to free up your capital to be placed elsewhere. In our case, we put it into our products. That allows you to have more competitive products. That's clearly been one of our strengths.

The other thing is trying to simplify what have become very complex products. Five or 10 years ago, the products we offered were far less complex, and there were far fewer of them. What is perfect from a consumer standpoint is competitively priced, very complex products made simple to allow for the maximum amount of options in an open architected manner. That is the right space to be in. It is incredibly challenging, though.

Because of the complexity and challenges of distributing these products, it's also important to have a scalable IT platform, to have knowledgeable and educated service and administrative types of people. We consider that a distribution challenge or opportunity, and we focus on it.

Another challenge is to try to earn a larger portion of an adviser's or agent's wallet share. If our best producers have expanded into mutual funds, separate accounts, variable annuities, variable universal life and everything else, we want to be able to provide as much of that for them so they can continue to be important customers of ours.

On a percentage basis, how much business does each of Jackson National's four main channels write?

Generally about 50% of our overall business is done with independent agents and representatives. The other 50% would be through regional broker/dealers, financial institutions, independent investment advisers or institutional investors. The only places we don't do business that are mainstream would be with very large aggregator types of companies on the insurance side--the MGAs [managing general agents] of the world--and on the securities side of the business, in the wire-house segment.

It really comes down to cost. With the MGAs, we could come up with very competitive products and stick them on someone's rate board. The problem with that from a manufacturing standpoint is it becomes very difficult to always be the most competitively priced product, because by definition you're willing to work on a lower margin than the other hundred competitors that have chosen to have less competitive pricing. We clearly could write more business, but it likely would be done under economic terms inappropriate for us.

So with the distributors you use, do you win their loyalties with good service?

It needs to be a combination of excellent after-sales support and very strong products that don't embarrass the agents with their consumers. And most of our clients feel as though they are on an educational island, and so they rely on us and other organizations like us to help them with their continuing education requirements, regulatory updates, and product development, pricing and positioning. Without those three things, it would be very difficult long-term to have a viable and sustainable business.

Limra International reports that 90% of sales are still through affiliated agents and independent agents as opposed to other independent distributors. What else must insurers do to keep these agents productive and successful?

Insurers need to give agents what they need to be successful, without trying to dictate what that is. It is crucially important for carriers to be flexible enough to respond to evolving agent needs as they help their clients plan for their financial future.

Industry experts have said the distribution system is in great peril in that agents number far fewer than 20 years ago, their average age is much greater, and the agent farm system doesn't work. Are these concerns to Jackson National and other big insurers?

I'd agree, but that's not a concern for Jackson National. If I had a large captive force, I'd have a different answer. The captive agency trends are likely to continue because there's such strong evidence that they are antiquated in the way they are choosing to look at things. Independent agents are no longer agents per se, but they're looking at themselves as financial advisers to their clients. They're able to sell insurance to clients, but the fact that they've expanded their education and background into the area of securities means they're going to be able to sell mutual funds and separate accounts and lots of other different types of products. So we don't see there being a crisis in terms of the consumer's ability to have a qualified adviser to educate them on insurance.

Are there ample numbers of those out there?

Yes. We do business with 50,000 independent advisers/agents in any given year.

Are they also into their mid-50s on average? Are they mentoring people?

Last time I checked, there were 130,000 independent registered representatives in the marketplace today. Of those, a very significant component have insurance licenses. We own our own broker/dealers as independent registered representatives, about 2,700 or so. They use an open-architected platform. Some are old, some are not. But what's been very interesting is the concept of succession planning. It's still very much a seller's market for independent insurance agencies and advisers. What that then says to me is that there are young people looking to buy old people's practices.

How do different channels need to be handled?

Very differently. As an example, we believe the bank marketplace is very different from the regional broker/dealer marketplace. Many of the banks own regional broker/dealers, so you'd think if any channels would be similar, it would be because the parent and the subsidiary would have married the two cultures. The reality is that it's not the case.

Key Points

* Controlling distribution costs can free up resources for product development.

* Although life products are increasingly complex, they must be functionally simple for producers and buyers, especially in an open-architecture environment.

* Independent producers look to their product providers to provide sales support and education.

* Each distribution channel must be handled differently.

Learn More

Jackson National Life Insurance Co. A.M. Best Company # 06596 Distribution' Independent agents, brokers and banks

For ratings and other financial strength information about this company, visit www.ambest.com.