It is Time to Embrace Trendy Distribution Channels
The future of insurance sales has been a hot topic in our industry for decades. Bold predictions a few years ago declared prematurely that the “death of the agency model” should largely be replaced by direct (and then digital direct) sales.
The prevailing view is that customers should be empowered to interact on the channel of their choice and that companies should deliver that experience in a personalized and seamless manner. Digital technologies are key to making this vision possible. Even if customers prefer to interact with agents, the agent is supported by digital resources (recommendation engines, illustration tools, video chat, etc.).
This current perspective seems to be bearing fruit while also opening the door to more unique sales approaches.
Digital distribution pays off
We recently published a report on the payback of digital innovations in the insurance industry. In this report, we measured Key Performance Indicators (KPIs) to identify the difference between executives and supporters for different innovation categories in North America.
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Innovations related to sales have a significantly higher KPI performance for executives compared to followers. The difference in customer experience is even bigger, which makes sense. There is a direct connection between a good customer experience and a seamless sales channel.
The report also highlights that investments imply the same focus on sales: 38% of total Insurtech funding goes to companies that focus on sales (up from 25% in 2010).
But what about customer sentiment? We published a consumer study on insurance sales back in 2017. Even without considering age demographics, it is clear that consumers are more open to buying insurance through non-insurance companies.
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Effects of COVID-19 on insurance distribution
The pandemic has accelerated the trends in digital sales, forcing even the most ardent proponents of traditional sales models to use new methods and tools to survive.
This is good news for the most part as it improves the customer experience of the traditional model and creates new models that could offer a radically better customer experience and potentially better economy. However, if incumbent insurers don’t proactively innovate, they may find others do. . . with or without them.
I suspect many insurers would embrace this perspective, albeit with different views on the pace and size of the opportunity and downside risks of not being proactive. I also suspect that some would dismiss this view as an exaggeration, believing that the current distribution model is difficult to displace due to regulatory requirements and overall complexity. This may be true for a subset of offerings and segments, but it will prove less true for a large part of the existing market.
You don’t have to stretch your imagination too far to see how new sales channels can develop quickly.
Where new sales channels can emerge
Consider two of the most fundamental principles of the customer experience: personalization and usability. The industry is making enormous investments in the implementation of these principles in the form of a simplified product language, digitized and optimized forms, pre-allocation of data and the use of data for tailor-made experiences and offers.
But what if we take these principles one step further in order to make the customer experience as simple and individual as possible? In some cases, like car insurance, you wouldn’t even have to ask the customer to contact an insurer in the first place. Instead, insurance would be an integral part of the transportation solution the customer buys. GM’s recent announcement that it will offer Onstar Insurance Services is a step in that direction, which essentially uses the automobile as a platform for insurance distribution.
If automobiles can be a platform for sales, what about other platforms like homes? With the proliferation of smart devices and an increasing number of connected households, this could be a future limit.
What about social media and messaging platforms? These already have a huge advantage in terms of engagement and frequency of interaction (two challenges that are ubiquitous for insurers). Social media users spend an average of 2 hours and 24 minutes per day multi-networking on an average of 8 social networks and messaging apps.
Why could some types of insurance products not be sold through these channels as payments and business applications are increasingly integrated into these platforms? Of course, the regulatory situation is different in parts of the world where this is already happening (e.g. China / WeChat). However, when you factor in the size of the user base and the potential for ease of use and personalization, it is only a matter of time before we see similar things in the US
Overall, investing in improvement and digital power distribution is critical. Don’t ignore what many companies are currently viewing as “alternative” channels, however, as these are likely to supplant or incorporate current practices over time. Consider new sales models paired with focused customer segmentation and a compelling value proposition. Regardless of whether they are labeled or advertised as “white label”, new sales models will be required to reach and retain customers in the future.