It is said that an agent spends 90% of his time prospecting for someone to sell to, and 10% of his time selling. The lead, or at least the qualified lead, allows the agent to spend 100% of his time selling. A fully qualified lead might be the name and address of a person who has agreed to speak to an agent about buying life insurance, a pretty rare beast. A totally unqualified lead might be a name on a list, maybe even in the phone book. Most agents would not consider a lead qualified as a "lead" unless the prospect had at least received a letter from some center of influence that an agent was going to call for an appointment, and encouraging the prospect to discuss his needs with the agent. My experience with leads other than personal referrals is the story of the American Income lead system and its evolution into an incredibly effective business generator, and the application of the basic principles to two totally different situations. I will tell this story in more or less chronological steps, with the intent that it may spark an innovative variation in your mind that will fit your company situation. Obviously, each situation is unique, as will become evident.

Notes

Discussion

When I joined AIL the agents were wholly dependent on a highly qualified lead, a mail response card from a union member indicating interest in hearing about insurance from an agent. The card was in response to a letter from the union encouraging the member to "be union, buy union" and return the card to buy from a fully organized company. The return averaged between 4% and 8%, depending on how long it had been since the membership was last mailed.

Why would the local union mail such a letter to its membership, and why was the return so high? In the mail order business, 1% is a good return. AIL was fully unionized and was one of only two companies in the country authorized to display the union label (and the other was a group company). Locals knew their members were buying life insurance, and there is a strong incentive to make union label products available. Further, the company and the general agent in charge of the state worked hard in support of union causes, providing scholarships, hospitality rooms, food collection for striking members, and walking picket lines in support. The worker in turn associated the union with his livelihood, and the implied endorsement carried in the letter from the union was very effective with those members who were inclined to consider buying insurance and who then returned the card to the state agency office.

The lead system had limitations. Once you give an agent cards that say "I want an agent to tell me about insurance", that is all the agent will do and sales are limited by the number of leads you can provide. That in turn limits the number of agents an area can support.

The number of leads is limited by the number of union locals willing to mail their members, and how often you can mail the same local membership. Further, the more frequent the local is mailed the lower the percentage return of cards, and the higher the expense per card to the state agent, who pays the mailing costs. Generally the period between mailings was between one and two years, depending primarily on when the agency ran out of leads. Too frequent mailings also takes a toll on the agents, who are seeing some of the same people each time.

In most agencies this system worked only with unions, but a few managed to adapt it to credit unions. Providing a marketing service needed by the credit union prompted it to mail both its members and the non members in its field of potential members. The service primarily involved signing up new members from the field of non members, but could include presentations designed to increase either loans or savings, whichever the CU needed.

A credit union's penetration of its field of membership is typically low, since few have a marketing arm, and none can afford calling on the individual members or potential members in their homes to explain the benefits of membership. When the agent included this in the presentation, the sign up rate of new members could run as high as 90%. The more members the bigger the job of the CU manager, so once the word got out among the managers it was easy to get new mailings. Unfortunately it proved impracticable to have the same agents selling in the credit union market as in the union market, since the union lead was more highly qualified than the credit union lead (the CU member didn't actually request insurance), and agents used to the union lead would often fail to provide the promised services to CU prospects. Needless to say, the "be union, buy union" presentation doesn't go over very well in most credit unions. This prevented supplementing union leads with credit union leads as needed, so most agencies stuck with the unions exclusively.

The small amount of credit union business disappeared with the huge expansion in the availability of union leads resulting from the invention of the so-called "group approach". This involved issuing a non-contributory group AD&D plan to the union, covering ALL of the members with $1000 of accidental death insurance. The average percentage return of cards changed from about 5% to about 40%, providing 8 times the leads as the previous method.

Why the huge jump in return? The letter under the old method requested a return of the card if the member was interested in buying insurance. The letter now announced that the member was ALREADY COVERED by the new group plan, and requested a return of the card so that the member could receive delivery of the group certificate and designate a beneficiary. The P. S. on the letter said: "AND WHILE THE AGENT IS THERE, BE SURE TO ASK ABOUT THE OTHER BENEFITS AVAILABLE." A card returned to complete a group enrollment is obviously not as "qualified" as one asking to buy insurance, but it was qualified enough to open up the expansion of the field force and the resultant sales. While it required more appointments to make a sale, the agent could now work a full day (night, actually) instead of a couple of hours. The credit union business, with all the extra service work, disappeared over night.

Murphy's next law: the field force expands to exhaust the leads available. Over time that expansion and the decreasing return on re mailings rekindled interest in the credit union market. It was discovered that the "group approach" lead transferred from unions to credit unions, and associations as well, much more readily than the old hard card.

Once the field force was accustomed to the softer, less qualified, AD&D lead, the credit union lead seemed just as good. It helped that providing an extra benefit for the member, at no cost to the member or the CU, supplied an incentive to the CU to sponsor the mailing. This permitted the agent to provide less marketing service. It evolved that leaving CU materials or conducting surveys, leaving it to the CU to follow up, sufficed. Likewise associations of various types are always looking for added benefits to provide the member, helping to justify the dues, so the agencies found association mailings readily available.

A variation of the group approach developed for situations where there was no entity involved that could be considered a group policyholder. The AD&D group certificate was modified to be an individual policy, issuable to anyone. This was effectively used to spark referrals, as the referring person now was providing perceived value to the persons named, and the agent was delivering no cost AD&D as he was accustomed.

The individual AD&D policy worked well with referrals, but did not pull leads in general mailings nearly as well. Some agencies doing list mailings wanted to limit coverage, and thus their expense, to persons returning the lead card. However, while many people will return a card to enroll in whatever a group they belong to is providing, the offer of individual coverage requires a decision that the free coverage is worth the effort and return is low on the $1,000 free offer. The return was significantly better when AD&D was offered for a dollar a year per thousand than for free, and better yet when offered in larger amounts.

A logistical problem arose with the use of the individual AD&D policy for referrals. The agent was used to delivering a certificate as part of the presentation, and wanted to be able to field issue the policy so he could go to the referral without waiting for the home office to issue the free policy.

The solution was to allow the agent to deliver a "gift certificate" good for the AD&D policy. The certificate instructed the recipient to mail it to the home office to exchange for a policy, but advised that the holder was covered immediately,and if accidental death occurred before exchange, the benefit would still be paid, and to the beneficiary listed on the gift certificate. Most recipients saw no need to exchange the certificate for the policy. It is possible to get into theoretical discussions of whether this "gift certificate" is itself a policy, with the requirements that come with that, but as far as I know it has never come up.

The individual AD&D policy was also used as a conversion policy, offered to individuals who had group coverage under a policy that terminated. The conversion offer was originally conceived as a reason for the agent to revisit the prospect, since termination was always at least a year after the original mailing under the group. The offer, to continue the coverage on an individual basis for $3 for three years, was so successful that it created significant numbers of policyholder who would be future leads.

Apparently people are more likely to pay to keep a coverage they are about to lose than they are to purchase it in the first place. The three year premium was intended to avoid the costs of billing $1 annual premiums. However, once we found that many policyholders would upgrade the coverage if offered, we switched to annual billing with an offer to increase the coverage up to $25,000 for $25 a year. Those upgrading were placed on the regular master file, becoming policyholder leads later.

Over the years a number of state agents left American Income and adopted the AD&D approach in with varying degrees of success with other insurance carriers. Apparently most of the successful adaptations were with associations, although other uses would not normally come to the attention of AIL agencies, so results are unknown.

The few insurance companies that supported the approach by former AIL agents essentially copied the products and sales materials in the entirety, sometimes just changing the name of the carrier on copied materials. In one incident, one appearance of the name was missed, and a solitcitation letter went out with American Income's name in it. Since they needed help, I selected a sampling of other AIL sales materials, changed all the names for them, including drawing the logo of the other company over ours, and sent them to the agency with a helpful set of instructions. Apparently either my package or the thank you note was lost in the mails.

At American Amicable, purchased in 2000, the sales force was so specialized that there was no channel conflict preventing experimention with the internet as a sales channel. Several approaches seemed attractive, among them fully underwritten whole life in the overage market, cancer insurance age graded at every year, and a modified version of the AD&D individual policy. The overage whole life treats underwriting as an advantage, as it is for the 70% who get cheaper insurance, rather than the more usual "no underwriting or health questions (we charge everybody more)."

I have indicated elsewhere my belief that only established insurance companies with other lines of business will be successful selling on the internet. They can create product and web sites with existing staff at little incremental cost, they can handle the trinkle of policies sold with existing business, and most important, they can afford to wait for something to click. The worst possible approach is to create a big budget, placing some practical deadline on results. All of the venture capital proposals I have seen for internet insurance companies had business plans which devoted most of the start up money to advertising, with a burn rate that had the capital lasting about a year. The rest of the money went for a computer system so innovative that none of the established companies could match it. Since I went to charm school I learned to say "fantastic!"

Working with Rob Cox, a long time expert at producing mail in leads from members of sponsoring organizations, it was decided to offer for sale on the internet the type of AD&D policy commonly offered through the mail by banks, credit unions and various businesses and associations. That offers $1000 of free coverage to everyone that responds, plus the opportunity to increase the coverage in increments of $10,000 at a cost of about $1 per thousand per year.

This type of AD&D offering in the mail sells enough upgrades to pay for the free $1000, pay the sponsering organization a fee or percentage, and cover expenses and profit. We reasoned that if the web site could reduce the expenses of handling questions, correspondence and the fulfillment package on the 50% of the prospects with computer access, we should have a good profit even if the other half were not afforded a response method. In addition, those going to the site would see our other product offerings, which we planned would be the whole life, cancer, and a very cheap annual renewable term plan. The underwriting would be extensive, but handled on the web in even better detail than the usual paper application. The other products would have a free ride on the AD&D, so with no marketing cost, the products could be priced below the market, and whatever sales developed would be gravy.

The initial announcement of the offer is included in the association newsletter or other mailing, and requests the member to go to the association's web site for the details. On the site the member can choose to take just the free $1,000, or to add the additional face amounts, and can complete a simple application.

The site responds to the selection with the amount of the premium and instructions for printing the two certificates, one for the 1,000 and one for the purchased amount. It also offers to mail a certificate if the policyholder does not wish to print it on the spot. Next is the page confirming that they are covered, describing the other plans available, with links to more detail and applications, and the introduction to the referral fee program. The referral program also provides full commissions to a licensed agent, less referral fees paid to non agents, on the entire chain of buyers, through 6 levels.