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How the Big Rock Rolls Through Changing Times

You know Prudential – “The Rock.” Like the Gibraltar cliff depicted in its logo, Prudential is still there, big and strong.

Also, just like that rock at the gate to the Mediterranean Sea, Prudential has been reshaped by years of facing the elements. It’s gone from a stock company to a mutual and back again. It went from being a mainstay of captive agents to becoming a major player in the independent space. Now it is looking to a future that blends not just both of those distribution worlds but also weaves in opportunities from the Internet and big data.

One of Prudential’s latest challenges as the insurance industry emerges from a long recession into the new economy is to get the right products quickly to an increasingly diverse market concerned about planning for retirement.

Typically, developments in products and distribution take years, even decades, in their full arc. Prudential has an opportunity to leap ahead in innovation in its recent acquisition of The Hartford’s individual life insurance business.

The deal adds The Hartford’s $1.5 billion in annual individual life premium to Prudential’s $5 billion of yearly individual life premium, according to the American Council of Life Insurers.

When the individual and group sales and assets are combined, Prudential is the nation’s second-largest life insurer. Prudential started its business in 1875, back when the life insurance market was known as “industrial” because it was workplace-based. At that time, other companies assumed there was no money to be made from selling individual policies to factory workers, because they believed the workers wouldn’t have the discipline to save.

The company’s guiding light, John F. Dryden, a charismatic businessman from a working-class family, persevered through his many failures by sheer will and self-taught knowledge. He had landed in Newark, N.J., (no one knows why) and started working at the Widows and Orphans Friendly Society.

In 1875, under his influence, the company focused on the industrial business and changed its name to the Prudential Friendly Society. The name came from the British Prudential, which Dryden had admired and studied. Dryden generated start-up capital for the new undertaking and business boomed. In 17 years, the company would move a few times, ending up in a Victorian, state-of-the-art gothic tower that would be the company’s home until the middle of the booming 20th century.

That has been the essence of Prudential – a large, expanding insurance juggernaut that started out with a dedication to serving the lower and middle classes and has evolved to serve the financial needs of all consumers as products and services have evolved to offer more sophisticated solutions.

This year, Prudential’s life insurance business is focused on the integration of The Hartford’s life insurance division. It has been an intriguing challenge to bring two different cultures together. But it is the differences that have made The Hartford and Prudential a good fit, said Kent Sluyter, who was named chief executive officer of individual life insurance and agency distribution when the deal was finalized in January.

 “We saw some real strategic opportunities to leverage the talent that The Hartford has and really strengthen our distribution and our product capabilities at the same time,” Sluyter said. “These things take time, and we’re trying to be very thoughtful about them.”

How much time? About two years altogether, with the clock starting last January.

“It’s a fairly lengthy process, in part because of some of the complexities of working through the administrative platforms and the migration of those platforms,” Sluyter said.

The process has three phases: stabilizing, integrating and optimizing the organization. It has been a learning experience to discover where each company excels and be sure to preserve those qualities.

The Hartford brand will still be available for a limited time in some markets, but Prudential is starting to offer its own branded version of The Hartford’s products. An example of that is the Benefit Access rider that was introduced in the summer. It’s a chronic illness rider that is patented.

“It was clearly something that we felt made life insurance more relevant for customers and bolsters the value proposition for life insurance policy owners,” Sluyter said.

The product is an example of the innovation that producers say their clients are demanding. The prospect of chronic illness and long-term care are top concerns for people as they get older, but consumers get sticker shock over the price of coverage. Producers have been experiencing more success selling life insurance and annuities that have the extra feature of an illness or long-term care payout.

The combination makes more sense not only for the client, but for the company. The payout is not based on the care, but on the value of the policy. Clients can do what they need with the money and the carrier is less likely to be pulled into deep water with long-term care costs.

“It’s a matter of getting the assumptions and the actuarial science right,” Sluyter said. “There is a cost associated to adding that rider to the policy. But it’s rather daunting how many of us are going to need that kind of coverage.”

Folding in The Hartford business has been an exercise in examining Prudential’s distribution history and where it can go with the new business.

“On the distribution front, Prudential brought strength in captive agency distribution systems as well as third-party brokerage general agencies,” Sluyter said. “So we had very strong capabilities with our own agents as well as strategic relationships with key brokerage general agents in the business.”

The Hartford’s strength was institutional and wirehouse distribution, requiring feet-on-the-street, point-of-sale, wholesale capabilities. At the same time, it had direct relationships with high-end independent producers. These are big case folks focusing on permanent coverage.

“It’s very high-touch service with a lot of hand-holding that really helps get those larger, difficult cases through the process,” Sluyter said. “It’s a high-engagement type of service compared to a more transactional approach.”

The Hartford brought creativity and a segment of high-premium cases to the deal and Prudential had the mechanism for efficient transactions. That ties back to the company’s bread and butter, since it started selling burial insurance in the 19th century to working-class people who had been written off by the rest of the insurance industry.

After World War II, Prudential had expanded with the rest of post-war America, as adventurous and experimental as a prudent company could be. It pulled in other companies from disciplines in financial services. Prudential also developed more cash-value life products and grew its captive agent force to more than 20,000 to support the high-margin, higher-service business. But as the products changed to be more protection-oriented and margins shrank, so did the sales force, which dropped to a low of 2,400 in 2008.

Since then, the company slowly has been adding producers, building up to about 2,700 today. Like many companies, Prudential is bringing on a more diversified advisor.

“When they come into the business today as a Prudential financial professional, they’ve got a full spectrum of products and solutions, from insurance coverage to annuities to investments,” Sluyter said. “We recognized that having someone solely focus on life insurance isn’t meeting the broader needs consumers have today, so there really needs to be a diversification of the product suite that advisors can offer in order to be successful.”

That would seem to take some of the focus away from life insurance, but Sluyter said some of the technology the company is developing can help with sales in the underserved middle market.

“Given the roots of Prudential, we feel very much a need to focus time and attention to figure that out,” Sluyter said. “The natural tendency of a financial professional, whether they’re captive or third party, is to go upscale. I think the solution is a combination of things: finding simpler products and a simpler process for selling and buying life insurance. We need to make it less cumbersome and faster, especially when it comes to smaller-size policies.”

Like most companies, Prudential is looking at ways to leverage technology and social media, so, for example, face-to-face may not necessarily mean in the same room. “This is not something that’s new, certainly, but the insurance industry, arguably, may be a little bit behind other industries with respect to the levels of sophistication,” he said. “We need to create integrated capabilities that leverage technology to make distribution and advice much more efficient.”

No matter the products or process, it always comes back to the essential: service.

“Throughout the economic crisis, I believe consumers got a new appreciation of their vulnerability and the need for advice,” Sluyter said. “Going it alone is not always the right answer, and Americans need help with investments as well as protecting what they have. And that’s what we do.”

 


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