Wall Street Comes Knocking
Agents are unaware of the consolidation underway in the FMO world, but in the end, the nation’s independent insurance agents will feel the changes in many ways (both good and bad).
Banks, private equity firms and other financial institutions have quietly poured hundreds of millions into the insurance distribution channels known as Field Marketing Organizations (FMO).
Wall Street is on the hunt for alternatives to the flashy dot.com start-ups and has noticed the magic of residual income streams created in insurance.
Back in 2007 the founder of Amerilife sold to private equity group Reservoir and Black Diamond for a reputed $500 million. This partnership gave Amerilife the capital to quietly purchase a controlling stake in many smaller FMOs.
Then in 2015, Wall Street cashed out and sold Amerilife to J.C. Flowers and this pattern has continued since then and will indefinitely. Capitalism needs growth!
Much of the interest in insurance distributors comes from the business model that is based on over 10,000 baby boomers aging into Medicare each day. Most Medicare Advantage products pay lifetime renewals and Wall Street smells opportunity. While there are relatively few large FMO offices, everyone that I’ve spoken to have fielded multiple purchase offers in the past year. The majority of the distributors are family owned (JSA, Agent Pipeline, SMS, Ritter, Copeland, Kellogg, Pinnacle) with multiple family members lined up to carry on the business.
Many of us have hopes to stay the course and continue our proud traditions so we can pass our companies down to the next generation.
Not “selling out” is not as simple as turning down a pile of cash for the greater good of our traditions. Will we lose our ability to compete for agents and top contracts? Will we try to be the last store on the courthouse square slowly dying as Walmart comes to town?
When President Obama was elected I predicted that we’d see a huge consolidation in the Medicare market. (You don’t have to be very smart to foresee consolidation because it is the nature of all business.) If you are new to MAPD you may not recognize the names Arcadian, Sierra, PHP, John Deer Health, Care Improvement Plus and others that have been sold since Obama took office. The Big Five (UHC, Anthem, Humana, Cigna and Aetna) have rushed to gobble up everyone and #6, Centene Corporation is on the hunt to buy into the elite list of MAPD carriers who will be doing the buying, rather than being bought.
If you’ve made a career selling insurance, you can list a long line of companies that were sold and ruined by the new owner. Bigger is not always better. Will Wall Street money mean agents get better training and support? Don’t ask who wins, because big capital will win even if it ruins the market.
The cautionary tale of Conseco: they bought most of the carriers we brokered in the 1990s. We were excited to ride their wave up for 10 years, but the crash down was painful. We learned that bigger isn’t, well, you know…
While Amerilife and Integrity both have a lot to offer agents looking for a FMO home, we feel that distributors like us also have an attractive option. Agents want choices, and while there are now fewer choices, there are still many organizations vying to earn your business.
