FANews
FANews

Don’t miss the express train to the future

19 April 2018

Following the Global Financial Crisis, the world is looking at different ways to do business. 

This is a key feature in many industries and is largely being driven by the advancements of technology and the adaptability of the industry to come to terms with this. 

The insurance industry is no different. One of the biggest changes that technological advancements have brought about is the adoption of multi distribution channels. This can be a headache for many companies. 

The FAnews recently came across a report from Cognizant which explores this issue in more detail. 

Much of the same

The report points out that if properly executed, multi distribution channels can enable insurance carriers to generate improved efficiencies and realize their growth objectives. 

Insurance distribution channels traditionally have been dominated by agencies and brokers. These channels remain the preferred choices for customers, particularly since many continue to seek face-to-face interaction to help them buy complex insurance products. 

The report adds that according to the Life Insurance and Market Research Association, 66% of customers prefer to purchase life Insurance products from insurance or finance professionals. 

However, with the increased adoption of the Internet, which provides faster access to company and product information, customer behaviour is rapidly changing. Customers now often initiate their product research through direct channels and then purchase policies from traditional channels. 

The report adds that according to the Insurance Information Institute, 54% of consumers obtain quotes for auto insurance online, and about half of customers purchase policies from agencies. 

Thus, the insurance industry must embrace a hybrid distribution system, which combines the best of both worlds and also improves the overall effectiveness of the agency channel. 

Pertinent challenges

This may seem like an easy decision to make. However, there are a number of challenges that need to be overcome (or addressed) before a successful transition is made. 

The following points were made in the Cognizant report: 

- Agency motivation and loyalty. While the agency channel will continue to be the preferred one for insurers, the elevated presence of direct channels have agencies worried that sales will increasingly be cannibalized by the internet and call centres. Insurers, therefore, must take steps to motivate the agency channel;

- Cross-channel consistency. Providing a similar cross-channel experience is crucial to customers completing the entire purchase cycle. The transition between channels should be seamless, with each mode offering the ability to retain information captured in previously used channels to provide a satisfactory customer experience. Communications inconsistency often leads customers to abandon the sales process;

- Servicing/upscaling direct customers. The criticality of the agency channel increases when customers move up the product value chain, particularly as they require personal guidance to choose the correct insurance product. Carrier efforts to cross-sell and up-sell will not succeed without hands-on assistance from the proper agencies;

- Non-value-adding agency tasks. Of course, the increasing number of distribution channels also increases the complexity of the distribution structure. In today’s complex distribution landscape, carriers and agencies struggle to gather reliable and actionable data. As a result, they spend more time on administration and data collection rather than focusing on providing consultation services to customers, which is where they add the most value. 

Key partnerships

The report adds that in developing multi-distribution scenarios, insurers need to recruit and retain agencies that can leverage technologies and appreciate multiple channels. 

Additionally, insurers must deploy customer relationship management (CRM) systems for acquiring, servicing and effectively managing their agencies’ sales forces. This must be done in line with the Financial Sector Conduct Authorities new view on binder relationships. 

The report adds that it is incumbent on carriers to establish efficient on-boarding processes for choosing agencies that are the right fit for their organizations by leveraging CRM systems’ lead and opportunity management functionalities. 

For example, carriers can set up advanced algorithms to estimate prospective partner quality and evaluate their fitness to the organization’s objectives and strategy. Strong on-boarding systems can also help carriers comply with insurance regulations by placing a strong governance system through rules engines and alert mechanisms. 

Important decisions

These decisions are obviously very important decisions to make as they may ultimately determine the future of the company. 

But they are not decisions that should scare you. Look at what value alternative distribution models can add to your business and then weigh up the pros and the cons. You may find that it will add more value than you think.

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QUESTION

The FSCA has said that the intrusive nature of regulation actually benefits insurers and intermediaries. Is this the reality on the ground?

ANSWER

Yes, intrusive regulation has helped us see how we can work towards better customer service
No, intrusive regulation comes at a cost and a major headache