Insurers Flexing Their Distribution Models
Doug French | December 09, 2015
(Editor’s note: During the summer of 2015, EY interviewed executives at approximately 20 leading US insurance manufacturers, distributors and reinsurers as part of an ongoing effort to understand how the life insurance and annuity industry can surmount current challenges and move forward. The objective was to understand the views and concerns in the eyes of industry executives and stakeholders – and to outline the industry opportunities and challenges from the perspectives of customers, distributors and manufacturers. The interviews focused on the global economy, innovation, distribution, talent issues and consumer protection. This is the third article in a five part series, where we will walk through our key findings. You can read the first article here and the second article here.)
Survey respondents are clear-eyed about the shifts away from traditional distribution models, as well as rising consumer empowerment and the breakdown of the information advantage insurers have traditionally enjoyed. Historically, the industry has operated with a high degree of opacity, due to the “low-engagement” nature of the life insurance business, where products are “purchased and then put in a drawer,” as one survey respondent put it.
Overall product complexity means consumers lack visibility into the costs and inner workings of complicated insurance products. In this context, the traditional distribution model made sense, with predominantly face-to-face distribution with commission-based agent compensation and a general focus on affluent markets.
But today, the playing field has changed. Customers have unprecedented access to product and pricing information, thanks to the Internet. Their preferred shopping methods have changed globally, with a pronounced preference for mobile shopping and self-service channels that are available 24/7.
Today’s consumers are more comfortable with self-service and have educated themselves to a greater extent than in the past. Further, technology is challenging the traditional advice model and facilitating the emergence of new, low-cost, online-based advisor models. These so-called “robo-advisors” have had a major impact, according to survey respondents. Consumers seem especially attracted to the objectivity of the advice and the continuous updating of guidance.
It is important to note a few contrarian views among survey respondents. Some expressed little faith in Internet sales, questioning whether average consumers understand their own insurance needs. Similarly, robo-advisors may only be appropriate for select people who are comfortable with the significant information input required to make such models work.
Still, the overall impact is clear: the insurance advice model is changing. Customers who still engage advisors may only seek to confirm purchase decisions, rather than guidance on the purchase decisions themselves. Further, customers now expect a high-quality, customer-centric experience and seamless, high-tech digital experiences. Survey respondents recognize the industry has struggled to deliver these in the past.
One distinct trend is the shift toward “omni-channel” distribution. With an omni-channel approach, insurers offer a range of channels to suit the diverse purchasing preferences of consumers. For example, a consumer may come to the company digitally and then switch to an advisor for a more personalized service experience. Additionally, the mix of channels will vary by product as well. Improving the efficiency of traditional advisors is another priority. The need to digitize steps in the sales process is driving the significant investment around Client Relationship Management (CRM) and electronic applications for agents, as well as an improved underwriting process.
The key is to change the role of the agent at the point of sale to unlock customer lifetime potential, not just take an order or close a sale. Such a transition would require a new focus on providing holistic advice for customers based on a deeper knowledge of their needs and are finding the right offering for those needs. “Life-cycle selling,” or a program to re-engage throughout a customer’s life after the initial sale, may open up significant cross-selling opportunities, such as integrating 401(k) plans with options for life, health, and disability.
If this strategic evolution were to succeed, insurers would not only have to develop new products, but also shape an entirely new value proposition for consumers. One respondent exhorted the industry to become more “involved in protecting, monitoring, and advising on health rather than just being involved at death.”
Looking forward, “more digital” does not equate to “no face-to-face.” In fact, even as new distribution models grow, in-person contact will remain predominant, according to survey results. According to one executive, “I can’t believe that a meaningful amount of life insurance can be distributed without human contact.” Another disagreed, stating, “A significant portion (not majority) of sales will be agentless.”
Whatever the exact percentage of sales that move to direct channels, it is clear digital platforms are here to stay. Thus, the carriers with the most advanced capabilities—especially in terms of mobile—are most likely to win. Further, customers will have more freedom and authority in choosing how they want to engage with the company; carriers and their distributors will not set the terms of engagement, as in the past. One respondent highlighted the need for “peaceful co-existence between channels.”
Beyond channel orientation, the more significant step may be adapting to consumer expectation and perception about the value of life insurance products. Providing a good customer experience, both at the point of sale and throughout the customer’s lifetime, will be the key. One respondent mentioned the need to “actually own customer relationships,” rather than “producer relationships.”
In any case, significant recalibration of compensation models, a highly sensitive issue in the past, appears likely. It seems clear that simpler, fee-based compensation, with fewer bells and whistles is a possibility. Looking ahead, one respondent described the future vision this way:
“An agency model where we provide technology, a product set, and regulatory compliance/oversight tools [to attract producers], and if the compensation that’s been built into those products is sufficient, [agents will] be the judge of whether they want to sell the product or not.”
This model applies to both life and annuity sales. Robo-advisors will continue to gain traction, potentially diminishing commission on annuities, but there is a clear and pressing need to keep such products attractive to consumers.
While the Internet has closed the product knowledge gap between insurers and customers, information asymmetry will re-emerge in the long-term. Yes, the Internet has given customers more access to pricing and product information, which benefits consumers, but this is a temporary phenomenon. Once consumers react, with the addition of advanced analytics, insurers will once again have more and better data, which may ultimately give insurers an informational advantage over consumers.
What respondents say:
- “Buying habits are changing, and we’re going to have to change with them.”
- “The fact that middle market isn’t as penetrated as it needs to be; that’s old news. But there are swaths of current customers on our books that are underserved.”
- “There are false distinctions between [agency/brokerage, worksite, and direct] distribution channels. The reality is if you go omni-channel, you have to direct people to the environment where they’re most comfortable working. It’s the customer’s call.”
- “We find a lot of the people either calling/using the Internet do eventually want an agent—maybe not on that transaction, but it at least gives leads to agent to cross-sell.”
- “I can’t believe a meaningful amount of insurance can be distributed without human contact.”
- “I don’t see much pricing power as an industry… so you have to be able to differentiate around service and experience.”
- “We think a lot of our products will be best presented and reviewed via the internet, only to have a follow up by a call center or an individual. We see that combination needing to peacefully coexist for a long time.”
- “At some point you just accept the consumer has full transparency and work from there.”
The views expressed herein are those of the authors and do not necessarily reflect the views of Ernst & Young LLP, the global EY organization or the Insurance Technology Association. Doug French is the managing principal of the Insurance and Actuarial Advisory Services practice within Ernst & Young LLP in New York. He can be reached at email@example.com.
- Your Insurtech Investment: Making the Most of the Software You Already Have
- Electronic Chat with Sanjeev Kumar Chaudhry, Founder and CEO, Gigaforce
- Electronic Chat with Sylvester Mathis, Chief Insurance Officer, Insurity
- Inside the ITA: Meet the Board
- Digital Drip: New Lease on Life
- Transformation Corner: Core System Transformation
- Big Fix: Closing the Data Divide
- Tech, Processes, and a Plan
- Core Systems: Out with the Old?
- 5 Things to Consider When Modernizing a Surety System
- Four Benefits of Integrating Mobile Crash Detection and Accident Management
- Everybody Loves Gelato
- Electronic Chat with Jennifer Smith, VP of L&A Product Strategy, Sapiens North America
- Now Accepting Nominations for "Pick of the Litter" Issue
- “New Normal” Requires an Insurance Analytics Evolution
- Accuracy: Are Data Providers Pulling the Wool Over Your Eyes?
- Agents Send More Business to Insurers with Better Tech, Celent Finds
- Electronic Chat with B2Z Insurance
- Still Standing, Still Learning, and Still at Home
- ITA Pro Magazine, May/June 2021
- Electronic Chat with Chris Ewing, Founder and CEO, One Inc
- Electronic Chat with Sharmila Ray, Head of Carrier Strategy, Solutions and Go-To-Market, Vertafore
- Electronic Chat with Alex Devoto, Founder, LVLFi
- Prince Charles, Lloyd's Launch Sustainability Insurance Task Force
- UFCIC Becomes First U.S. Insurer to Accept Cryptocurrency for Premium Payments
- Electronic Chat with Ty Harris, Co-Founder, Openly Insurance
- The Insurance Industry’s Reliance on Friction: A Good Strategy?
- Loss Control, Premium Audit Systems Critical to Customer Experience, Celent Finds
- What's AI-Right and AI-Wrong?
- The Drive for Digital
- Electronic Chat with Candice Smith, Founder and CEO, Caregiven
- Electronic Chat with Nestor Hugo Solari, Founder/CEO, Sigo
- The Giant Hole in Actuarial Models
- Electronic Chat with Trent Cooksley, COO and Co-Founder, Cowbell Cyber
- The ITA Pro March/April 2021 issue is here!
- Purchasing and Innovation: Friends or Enemies?
- COVID Drives More Reliance on Risk Management Systems, New Study Finds
- Electronic Chat with Robert Clark, CEO, Cloverleaf Analytics
- Solving Customer Communications Challenges with Hybrid Mail
- Six Trends Shaping Digital Insurance Tech Strategies in 2021
- Billing a Key Component of Customer Service, Celent Finds
- Why Data Science Fails
- Electronic Chat with Andrew Jernigan, CEO, and Allen Koski, President and Chief Innovation Officer, Insured Nomads
- Electronic Chat with Allison Martin, CEO and Founder, UDoTest
- Are Carriers Ready for the Coming Crash?
- Electronic Chat with Christopher Moore, Director for North American Sales Engineering and Solutions, Trifacta
- Next Insurance Partners with Amazon Business Prime to Provide Small Businesses with Affordable Digital Insurance Options
- An AI Walks Into an Electronics Store...
- InsurTech NY Announces Global Early-Stage Competition Winners
- World’s Worst County/Western Insurtech Song
- Electronic Chat with Anne-Laure Klein, COO, Akur8
- COVID-19 One Year Later: The Digital Transformation of Insurance
- Electronic Chat with Michael Kassing, CEO/CVO, insured.io
- BrokerTech Ventures Announces 2021 Cohort Class for Accelerator
- An Entirely Preventable Disaster
- Flipping the Fraud Triangle
- The January/February ITA Pro Magazine is here!
- Credit Risk, ESG, Cybersecurity Top Risk Concerns for Financial Institutions, Deloitte Finds
- Electronic Chat with Ellen Moser, Senior Client Executive, Origami Risk LLC
- The Answer to “So What?”
- Leaders Rise from a Year Like No Other!
- Electronic Chat with Jonathan Roomer, Co-Founder, YuLife
- Getting Creative to Hit COVID Curveballs Out of the Park
- Electronic Chat with Eugenio Gonzalez, Plug and Play
- New Report Projects Global Insurtech to Grow by $21 Billion During 2020-2024
- The 2020 Virtual Event Wasteland
- Insurtechs, Investors Optimistic About Post-COVID Future, New DIA/McKinsey Study Finds
- Finding Grandmas
- No Code / Low Code: The New “Shortest Route” In Insurance Delivery
- Are You Addicted to Copy-and-Paste?
- Electronic Chat with Nino Tarantino, CEO- Americas, Insurance and Mobility Solutions (IMS)
- Driving Life Insurance:Tech Alone Won’t Solve Business Problems
- Electronic Chat with Robin Roberson, Managing Director, North America, Claim Central Consolidated
- How Do You Make It Happen?
- Electronic Chat with Jason Liu, CEO, Zywave
- New Partnership Models Take Program Business to the Next Level
- New Study Finds Less than Half of Consumers Trust Insurers to Respond to Their Needs
- Electronic Chat with Andrew Mauritzen, CFO and Head of Insurance Industry, Exactuals
- You Want Us To Do WHAT For Free?
- Electronic Chat with Evgeny Aleksandrov, Co-founder and CEO, Pilotbird
- Electronic Chat with Chris Cheatham, CEO, RiskGenius
- New MIT Sloan Study Finds Few Companies Gain Big Benefits from AI
- The September/October ITA Pro magazine is here!
- “Being Right” is Just the Start of the Battle
- Electronic Chat with Amit Ranjan, Executive VP and CAO, Xceedance
- Planning for Your Business and Tech Future: Strategies, Plans and Budgets for Rapid Transformation
- Electronic Chat with Jimmy Padia, Founder and CEO, Floatbot
- Gelato with Dots and Sprinkles
- COVID-19 and the Insurtech “Junk Drawer”
- Even “Change” is Different Now. Your Strategic Planning Needs to Be Too.
- The Road Ahead for P&C Insurers: How to Understand Customers Better and Navigate the Post-COVID Insurance Market
- Electronic Chat with Jake Tamarkin, Co-founder and CEO, Everyday Life
- Strategic Planning in the “New Normal” Digital Era of Insurance – Your Next Move
- Insurer Tech Investment Priorities See Major Shift in a Post-COVID World
- Plug and Play Selects 25 Insurtech Startups for Winter Batches
- Digital Transformation – A Top Strategic Priority and New Reality
- Four Steps to Successful Migration of Insurance CCM Applications
- COVID-19 Accelerates Insurance Digitalization to Meet Customer Demand: World InsurTech Report 2020
- Electronic Chat with Greg Williams, Co-Founder, President & CEO, Acrisure
- Electronic Chat with Matt Perlman, Partner, IA Capital Group
- Insurer Digitalization: Are you a Competitor or a Laggard?
- Leaders are Leading and Creating the Future of Insurance Distribution
- 3 Things You Need to Know About No-Code
- Electronic Chat with Adam Kiefer, CEO, Talage
- Underwriting in 3D: Using Data to Adapt and Improve Life Insurance Sales
- Getting Past the "Gelato Syndrome"
- Insurers Know CX/UX is Important, but Don't Agree on Execution, Study Finds
- Electronic Chat with Steve Lekas, Branch Insurance
- How AI Can Attract Millennial Talent to the Insurance Industry
- Preventing Data Breaches
- A New Boom for Life Insurance: Shifting Away from the 250-Year-Old Policy Transaction
- Electronic Chat with Ty Harris, Founder and CEO, Openly
- A Digital Wildfire Creates a Burning Platform for Digital Insurance Business Transformation
- Digitalization, COVID-19 Spurring More IT Investment in Cybersecurity
- Electronic Chat with Michael DeGusta, CEO, ClarionDoor
- U.S. Consumers Significantly Underestimate Flood Risk, New Survey Finds
- The Future of Insurance: Opportunities in Ecosystems
- Electronic Chat with Todd Greenbaum, CEO, Input 1
- Majesco to be Acquired by Thoma Bravo
- The Evolving Role of Managing General Agencies
- Electronic Chat with Char Hu
- Electronic Chat with Allan L. Egbert, Jr.
- Electronic Chat with Christopher Tramontano and Zbigniew Gawienczuk
- Data Science is Gelato
- Insurance Innovation: Alive and Kicking
- Independent Agents Divided on Digital Experience, New Survey Finds
- Electronic Chat with Michael Jones
- Electronic Chat with Paul VanderMarck
- As Auto Insurance Premiums Shrink, Insurers Need Mobility Ecosystem, New Study Finds
- Property & Casualty Insurers Raise Digital Games as COVID-19 Elevates Customer Expectations, J.D. Power Finds
- Electronic Chat with Bobbie Shrivastav
- Meet the Board: Marissa Buckley
- Big Data and Insurtech: A Carrier Perspective
- Traditional Insurers Need Open Ecosystems, Partnerships to Remain Competitive, CapGemini Report Finds
- Electronic Chat with John C. Siegman
- 4 Ways AI is Empowering Insurers During COVID-19
- 6 Big Changes to Insurance from the COVID-19 Crisis
- Electronic Chat with Christopher Ewing
- Independent Agency Staff Morale High During COVID-19, New Survey Finds
- Electronic Chat with Brad Epker
- Tapping AI to Improve Policyholder Experience
- Electronic Chat with Manisha Bhargava
- ITA Pro Magazine, March/April 2020
- COVID-19 a Game Changer for Workers’ Comp
- Electronic Chat with Steve Comer
- COVID-19 Pandemic Forces Cancellation of ITA LIVE 2020
- Leveraging Digital Resources in the Time of COVID-19
- Electronic Chat with Robert Hartwig on COVID-19 and Insurance
- Celent Study: Most Small Businesses Still Unclear on Importance of Cyber Insurance
- The January/February 2020 ITA Pro is here!
- Deloitte: New C-Suite Roles Mean More Opportunities for Women
- Electronic Chat with Pankaj Parashar
- Electronic Chat with Tara Kelly
- Electronic Chat with Chuck Wilson
- ITA, InsNerds Collaborate to Enhance ITA LIVE 2020 Content and Coverage
- How SMBs Can Compete in Digital Ecosystems in the 2020s
- 4 Ways Insurance Can Prepare for New Data Privacy Laws
- Brewer Lane Ventures Launches and Hires Insurtech Vet Martha Notaras as Managing Partner
- 2020 GIA Cohort Launches on January 14
- The November/December 2019 ITA Pro is here!
- Electronic Chat with Joshua Snead
- Electronic Chat with Wendy Aarons-Corman
- Simplifying the Move to a Third-party Print Provider
- Take a Business-Driven Approach to Continuous Improvement for Core Systems and Processes
- Electronic Chat with Ron Glozman
- Guidewire’s Data Guru Mike Byam on How Insurers are Using Internal and Third-Party Data
- Electronic Chat with Russ Bostick
- Electronic Chat with Rock Schindler
- Electronic Chat with John Siegman
- Electronic Chat with Martin Burlingame
- Insurtech Landscape 2019: Top 5 Takeaways
- Grinnell Mutual Tackles Massive Transformation -- in Stride
- A Candid Conversation with Paul Mang
- SageSure Insurance Managers Improved Competitiveness by Consolidating Payments to a Single Digital Platform
- Digital Does Matter in Insurance-- And Insurers are Missing the Mark
- The 22nd-Century Insurer: Taking a Cloud-First IT Approach
- The September/October 2019 issue of ITA PRO magazine is now available in digital format here:
- ITA Pro Magazine May/June 2019
- Spotlight on the 2019 IASA Conference
- ValueMomentum Selects Erie as Site of Regional Development Center
- Capgemini and Majesco Become Alliance Partners
- Electronic Chat with Dr. Dan Shoham
- Electronic Chat with Todd Greenbaum
- Martha Notaras: The “Outsider” with an Amazing Inside View
- Electronic Chat with Larissa Tosch
- Martha Notaras Will Join ITA LIVE 2019 as a Keynote Speaker
- Five Things to Consider When Evaluating Your Cyber Risk
- ITA Pro Magazine, January/February 2019
- Synergy Between Insurers' IT and Analytics Teams Key to Operationalizing Insights, Says Novarica
- Major Ransomware Attack Could Hit U.S. with $89B In Economic Damages
- ITA Announces 1st of Three Keynote Speakers at ITA LIVE 2019
- Electronic Chat with Jeroen Morrenhof
- Legacy Systems Are Dead. Really? Don't Count On It.
- Now Accepting Nominations for the 2019 ITA Bridge Awards
- It's time to register for ITA LIVE!
- Registration is Now Open for ITA LIVE 2019!
- What to Expect from a Digital Experience Platform Implementation
- ITA Pro Magazine September Edition is Now Available
- It's National IT Professionals Day
- Save the Date for ITA-LIVE 2019
- OneShield Software and UrbanStat Work Together to Improve Real-Time Analytics and Risk Decision-Making
- ITA LIVE 2019 - SAVE THE DATE!
- Insurance Technology Association Announces New Editor-in-Chief
- August 2018 Edition ITA Pro Magazine is Now Available
- Enterprise Architecture in an Agile World
- Top 10 Tips for Securing Your Mobile Devices and Sensitive Client Data
- Industry Insight: 4 Global Insurance Trends in Digital, Data, Content Services and Security
- Diving Deeper into Prioritizing Your Strategic Digital investments
- Why Content Rules
- How Mass Personalization Will Open the Small Business Benefits Market
- At Year End 2017, Will Your Organization Be Protected from Cyber Risks?
- Do Insurance Bots Dream of Mitigating Risk?
- Conditioned to Respond
- Managing & Mobilizing Insurance Data in a Connected World
- Race to the Finish Line
- New Tools, New Opportunities in Claims
- ITA LIVE: Reaching Insurance Industry Crossroads
- Advice to Insurance IT Leaders: Keep Your Eye on the Ball
- New Date, Venue for ITA LIVE 2017
- Guidewire Makes Major Push to Small and Midtier Market by Acquiring ISCS
- Insurance Disruption is Happening Right Now
- Insurity Adds Strategic Investment Partner, General Atlantic
- Beyond Transformation: The Convergence of Finance, Risk, and Actuarial Functions
- The Rapid Evolution of Consumer Protection Regulation
- Talent Hunt: Finding, Attracting, Retaining Top People
- Insurers Flexing Their Distribution Models
- Technology Driving Disruption in Insurance
- Fear of ‘Next Bubble’ Challenges Life, Annuity Carriers
- Technology Allows Commercial Lines Insurers to Stand Out
- Single Sign-on Viewed as Biggest Tech Challenge for Agencies
- ISCS Observes 20th Anniversary; Scurto Predicts Major Changes Ahead
- Policyholders and Their First Impressions
- Progressive Making Progress on the UBI Front
- High and Dry: Insurers Search for Disaster Recovery Plans
- Insurers Sign The (Un)Dotted Line
- Reflections of a Retired Insurance CIO
- Mobile Device Management Just One Answer to BYOD Issue
- Lessons from GEICO and Progressive on Winning the Critical Buying Stage
- You Are a Target for a Cyber Attack
- Web-based Systems are the Next Evolution in Claims Technology
- Gaining a “Wow” Experience from Web Users
- Time to Shift from Business/IT Alignment to Business/IT Alliance
- Healthcare Insurers Changing to Consumer Model
- Organization is the Key for Selecting Software Vendors
- Analysts Expound on the Needs of the Mid-tier Insurance Market
- Finding the Cure for Obamacare’s Website
- New Software Solutions Benefit Insurers on the Inside and Outside
- Products, Market Impede Investment in Systems for Life Insurers
- Combatting Cyber Threats: Predict, Prevent, Persist
- The Future of Telematics Heads Beyond Insurance
- The Shame in Cyber Security Lapses
- Building Policy Administration Systems for the Future
- Insurers Look Into The Eyes of Their Policyholders
- It’s a New Dawn for the ITA
INSURANCE IT NEWS
- Arturo Hires New General Counsel
- Zurich NA Adds Chisel AI for Underwriting
- Insurity Acquires AuSuM Systems
- Method Insurance to Streamline Underwriting with Origami Risk
- BrokerTech Ventures Launches BTV LATAM Partnership, Adds UNICO Group as Broker Partner
- Roost Rolls Out White-Label Home Security Solution
- Norway’s Gjensidige Pensjonsforsikring Selects Sapiens Digital Solution
- Insurium Names Insurtech Veteran Jeremy Williams CEO
The Email Chat is a regular feature of the ITA Pro magazine and website. We send a series of questions to an insurance IT leader in search of thought-provoking responses on important issues facing the insurance industry.
ITA LIVE 2020
ITA LIVE 2020 –SAVE THE DATE!
April 5th – 7th, 2020
The Diplomat Resort
Become a member today to receive updates – www.itapro.org/MR
You have surely heard it said that small businesses are the growth engine for America. Today, the phrase has a special ring to it for benefits... READ MORE
With stagnant growth and lingering low interest rates, the life insurance industry faces a challenging future... READ MORE
Finding insurance carriers willing to write commercial lines risks has always been a challenge for producers... READ MORE
As Guidewire Software prepares for the start of Connections, its 11th annual user conference that begins on Nov. 2, Brian Desmond, chief marketing... READ MORE
Successful implementation requires balancing operational and emotional issues... READ MORE
- Vendor Views