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Facing up to distribution challenges

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Like their Australian counterparts, US insurers are looking to improve distribution practices to drive growth.

Of course, the US market is in many respects quite unlike Australia’s, but the way in which US insurers are moving to build business should be instructive for the local market.

A new study released in the US by research and analysis company Celent sees technology as the catalyst for changes to distribution, with insurtech proving either a major worry or opportunity to insurers.

What’s striking about the report is that, in many aspects, the Australian market is further down the road of change than the much larger and considerably more unwieldy US market. But some of the solutions being reached there could have implications for the local market.

Moving into the direct market for business cover is, to many US insurers, a development they are struggling with.

The bulk of business written in the US market is via “independent agents” – insurance brokers in Australian parlance – and strategies unveiled by the panel of insurers that assisted Celent researcher Karlyn Carnahan focus strongly on ways to expand the customer base through the agents.

The report says buyers are “being conditioned by the internet to expect that they can interact with insurers in any manner they choose. They expect to be able to buy direct online, to call the insurer directly, to work with agents, and to access insurance at the same time that they purchase products.

“They have more insurance literacy than ever before, and they expect transparency and control over the buying process.

 “Consumers are already voting with their wallet and moving online in droves, and insurtech firms are taking advantage of that. But it’s not easy for insurers to just go direct.”

Why? The report says most insurers “don’t have the skills necessary to sell a policy”.

“They may have programs to help the agents, but don’t have their own capabilities. Decisions need to be made about how to proceed. Will they create an in-house call centre? Will they commit marketing dollars to organically generate traffic to the website?”

As these operational decisions are being made, technology capabilities also must be expanded, the report says. CIOs are increasingly engaging with the marketing end of the organisation as distribution management becomes more important.

“Changing expectations mean carriers are forced to assess and address new channels while finding ways of preserving their franchise value and preserving existing channels.”

Additionally, the explosion of insurtech start-ups carries the potential for channel disruption. The Celent report says there are more than 145 start-ups in the US and more than 300 worldwide. Carriers can work with them, invest in them or even imitate them, “but those who ignore them do so at their own peril”.

The US insurers “are expanding their distribution channels, adding distributors, moving into new territories and growing their existing channels to improve customer acquisition and retention”, the report says. “These multiple channels are effective at targeting different aspects of the market, but add complexity when it comes to channel management.”

It says the explosion in the number and influence of insurtech start-ups “carries with it the potential for channel disruption”.

The close relationship with agents causes conflict, with property and casualty insurers that participated in the research showing some disagreement even about who their customers actually are: the buyer of the cover or the agent who sells it for them?

“In no other industry that I know of do we have a disagreement about who the customer is,” Ms Carnahan says. “Yet in the insurance industry, this is a matter of religion for many people.”

The report says this fundamental question “appears to have an impact on the investments insurers are making when it comes to managing the channels”.

The success of direct-to-consumer insurtechs has prompted a large number of insurers to become engaged in building direct-to-consumer capabilities, the report says.

“Many insurers offer some sort of direct sales capabilities for personal auto. Increasingly, they are extending this direct sales capability to more complex lines including homeowners, workers’ compensation and small business.

“To be successful here, an insurer has to have a streamlined process, a slick user interface, minimal data input, tailored advice and real-time decisions.

“However, the US insurers looking at direct models for commercial as well as personal lines policies are also trying to maintain their relationships with agents – a situation they see as a major cause of channel conflict.”

The solutions are varied. Some insurers are doing more to support “their” agents by assigning them to particular opportunities using algorithms that take into account location, status or current production levels, while others are using systems that prompt consumers to choose an agent.

But the braver insurers are going direct with a new and different brand., for example, allows commercial insurance buyers to obtain coverage from Berkshire Hathaway insurance companies.

Possibly the most interesting development is cross-selling, where insurers with expertise in certain areas provide cover for another insurer that has no reach into that particular niche.

For example, major auto insurer Geico cross-sells a number of products underwritten by other insurers, and rival Progressive Insurance uses the Bolt Platform to retain ownership of its customers by offering them the choice of products underwritten by other carriers.

“By bundling other carriers’ homeowners products with its own auto insurance, Progressive increases its chance of retaining customers – and avoiding the costs of customer reacquisition,” Celent says.

Consumers increasingly expect instant action, and insurers are looking for ways to be available “at the point of need, rather than after the need has been generated”.

But the greater load being forced on insurers as they move to a more complex multi-distribution model can result in multiple issues, including poor service, a lack of insight into producer performance, unreliable data and high support costs, the Celent report says.

“The inability to link information means distributors are managed on transactions instead of strategically. Compliance issues continue to plague insurers that find it difficult to monitor licences and process appointments in a timely manner.

“Such pain has existed for many years. However, in the current low-growth economy, the impact of such an unintegrated approach is more severe.

“It is critical to increase production within existing distributors (keep them happy), necessary to expand into new producers (bring them on board quickly and with minimal hassle), and essential to monitor performance of all sales activities (know who is doing what and take action appropriately).”