The business economist at work: economics in an insurance marketing environment

Business Economics, Jan, 1996 by Joseph A. Gareis

LIMRA International is an insurance industry trade association serving the marketing and distribution efforts of our membership. LIMRA doesn't do economics for the sake of it. Economics is one of a number of often competing approaches that may shed light on the industry and hopefully help people in member companies make better decisions. A large part of the economist's job is to show that you have analytical toolbox that best fits the issue or problem.

To understand the economist's job at LIMRA International you need to know something about the organization. LIMRA International is an industry trade association. It includes insurers and other firms offering some combination of insurance (life, health and disability income) annuities and other personal financial products. The association includes about 275 domestic members and a similar (but much more rapidly growing) number of international companies. The association has offices and research departments in the United Kingdom and Australia supporting European and Asian insurers, in addition to the home office in Connecticut that serves the domestic (U.S. and Canadian) membership.

Until recently (yes, we "reengineered" too), L.I.M.R.A. stood for Life Insurance Marketing and Research Association. Traditionally the industry relied on personal life insurance sold through exclusive (more or less) insurance agents. But as the industry evolved to a wider range of products and distribution approaches, LIMRA was expected to keep pace. We responded by diversifying our activities, particularly in supporting annuity/pension markets, employer-sponsored (group) distribution, and noninsurance affiliates of our membership (such as banks and broker-dealers). To emphasize that we do more than just personal life insurance, which currently accounts for only about a quarter of the industry's premium revenues, we changed the name and now LIMRA officially means nothing.

What hasn't change is the general role LIMRA plays in the industry. It provides research, consulting, and research-related publications and services for the sales, marketing and distribution functions of membership. Our primary audience (i.e., the individuals who sign the association's dues checks) are chief marketing officers (CMOs).

LIMRA'S ECONOMIC RESEARCH PROGRAM

Not counting pooled support staff, economic research in LIMRA is a one-person operation out of a total association staffing of 250. Given that I do other things besides economics, the economics program is even smaller than that. A few others in LIMRA have graduate economics degrees, but they are being used in either management or research generalist roles. LIMRA's research staff is dominated by psychologists. Of the sixteen Ph.Ds in the organization, twelve are psychologists (most of them industrial psychologists).

Such as it is, the economic research function is housed in LIMRA's Industry Research department - a part of the Member Benefits (i.e., dues supported) business center of the association. Other LIMRA units are organized around various insurance distribution systems. Companies or departments using independent sales reps are separate from those using either captive agents or selling employer-sponsored products.

The Industry Research department is responsible for research that applies to companies regardless of how they distribute products. This research includes tracking overall industry marketing performance and trends: sales growth, customer retention, product mix, and the like. It also includes maintaining a profile of the industry's buyers and doing research on why some consumers buy various products or from various sources and why others do not.

The other LIMRA units see Industry Research as the department that does what they don't. But we like to think of our mission in more uplifting terms: our overriding responsibility is to understand the insurance industry marketing environment and to explain it.

INSURANCE INDUSTRY ECONOMISTS

I have no idea how the insurance industry compares to others in the number of economists employed. But in terms of the effect they have within the industry, the role of insurance economist seems to me much more limited than elsewhere. Banking, securities, utilities, and durable good manufacturers come to mind as areas in which markets and issues are more likely to be discussed in economic terms.

This may reflect that, in the insurance industry, actuaries provide most of the industry's quantitative support. They do much of the applied statistics, finance, and even economics. Although some actuaries have an academic background in economics, few are card-carrying economists. The good news: you are unlikely to hear lame jokes about economists in industry meetings because actuaries occupy the bottom of the food chain.

The practicing economists you do find in insurance are employed mostly in investment departments. There they do pretty much the same thing as do economists in banks, brokerage houses, and other financial institutions. You also find an occasional corporate staff researcher who does economic analysis on a project basis. But in either role, economists in the insurance industry are limited to a few of the largest companies, where they tend to be remote from the operating side of the insurance company and have little to do with insurance products and markets.