Brushing The Cobwebs Off John Hancock
In the staid, gray-suited world of life insurance, David F. D'Alessandro stands out. His ties are a riot of color. He has a seven-foot cactus next to his desk. Nearby on the wall hang Muhammad Ali's boxing shorts, framed. And to an industry long dependent on its agents, his ideas on how to sell insurance are decidedly unorthodox.
John Hancock Mutual Life Insurance Co. figures marketing whiz D'Alessandro is just what it needs. A former public relations man, D'Alessandro has never sold a policy himself. But while nearly all major insurers use agents, he is pushing Hancock to sell through direct mail, telemarketing, banks, and even Merrill Lynch & Co. stockbrokers, mainly for annuities. Plus, in the wake of recent insurance-sales scandals, he is revamping how Hancock's agents are paid to reduce the incentive to abuse customers. Says D'Alessandro, 46, who will become Hancock's president in January: "If nothing changes, the Fidelitys and the Schwabs will pick us off."
Indeed, Hancock and the rest of the industry face a rocky future. Life-insurance policies, the industry's core product and one intended chiefly as financial protection if the breadwinner dies, have lost appeal as baby boomers focus on investing for retirement. Overall, sales of life policies have dropped 8% over the past four years, while mutual funds have enjoyed a 118% surge in assets.
Making matters worse for Hancock are a variety of scandals. The insurer is battling a nationwide class action claiming that commission-hungry agents used misleading sales materials to snooker customers into buying policies. Hancock concedes it could be zapped for a $100 million-plus settlement. Hancock, and D'Alessandro personally, face another suit contending the company should reimburse policyholders for $4 million used to pay legal expenses for the company's former chief lobbyist, F. William Sawyer, who was convicted in 1995 of providing illegal gratuities to Massachusetts legislators.
That ex-P.R. man D'Alessandro will be the No.2 executive at the nation's sixth-largest life insurer (assets: $54 billion) speaks volumes. Traditionally, top insurance honchos come up either as agents or actuaries. D'Alessandro never had heard of an actuary until joining Hancock in 1984 as PR chief. He is credited with developing Hancock's award-winning "Real Life, Real Answers" ads, offering emotional cinema verite of average people talking about financial security. D'Alessandro also moved Hancock into sports marketing. Around Boston, he's best known for saving the Boston Marathon from extinction when he talked Hancock's brass into sponsoring the race. Once, D'Alessandro actually tried to wrap a 10-story red heart around the Hancock tower, Boston's tallest building, for a Valentine's Day promotion of a company charity. The head office nixed the scheme.
Wanting to prove he was more than just an imagemeister, D'Alessandro persuaded superiors to let him run group insurance in 1988. In 1991, he became head of retail operations, where he has kept life policy sales growing when much of the industry's were shrinking. D'Alessandro made his mark by aggressively pushing his agenda for change. Neil Strauss, a Standard & Poor's Corp. analyst, says: "D'Alessandro is an innovative leader who has made Hancock the only insurance company not in a defensive mode."
Hancock's financial results, fueled in part by D'Alessandro's retail success, are impressive. Its 1996 return on assets was 0.8%, says S&P, outstripping industry leader Prudential Life Insurance (0.5%) and second-ranked Metropolitan Life Insurance (0.4%). As the likely heir to Chairman Stephen L. Brown, due to retire in 2002, D'Alessandro should keep his experiments going for some time.
AGGRESSIVE. Unless, of course, they turn sour. "He'll either be very successful or he'll leave in two or three years," says John H. Goldsmith, chairman of broker Tucker Anthony, a Hancock spin-off. D'Alessandro's aggressive, fast-paced style hasn't always gone over smoothly. As retail head, he closed 90 of 250 sales offices because, he says, agents weren't productive or were engaging in questionable sales practices. He also fined "hundreds" of agents and laid off 1,200. "I got death threats after that and needed bodyguards," he recalls.
The biggest, and riskiest, change lies ahead: overhauling how agents are paid, a critical issue for restoring public trust in the industry. Agents typically take home 50% of first-year premiums on a new policy, with annual payouts gradually dropping to 2%---providing a huge incentive to sell old customers fresh policies. D'Alessandro would give agents a flat 10% a year. And to partly offset the loss, they would get bonuses for meeting sales goals. That would greatly reduce the incentive to churn. "The old system attracts too many corruptible people as agents," says D'Alessandro. His aim is to put half of Hancock's 3,200 agents under "levelizing," as the system is called, by yearend 1998.
Trouble is, his sales force might bolt. That happened at Acacia Mutual Life Insurance Co. when it started levelizing in 1994. Despite the disruption, midsize Acacia stayed with the idea and hired replacements. But larger insurers have balked. The Pru tried it for some high-cost universal life policies, then folded the program after a year in 1996. It blames the product, which wasn't selling, not the compensation arrangement.
D'Alessandro has been busy soothing change-wary agents. Beyond revamping compensation, he's experimenting with an 800-number-based direct-sales channel that could divert business from agents. So far, phone operators sell low-profit term life insurance only with a benefit of less than $100,000. D'Alessandro says he has convinced most agents of the idea that direct sales reaches clients agents never see, and that it produces valuable sales leads. Agents may still rebel, because D'Alessandro plans eventually to use telemarketers to sell a range of products, including mutual funds.
Finally, he's fighting to bring the unknown concept of customer convenience to policy sales. Later this year, policy buyers can skip the customary medical exam and merely lick a tongue-depressor-like stick provided by the agent.
Will his many initiatives work? The answer is years away. D'Alessandro, however, sees the alternative as doing nothing "while a boa constrictor wraps itself around our neck."