In the first of this 3-part blog titled “Bringing Insurance Distribution Back Into Sync Part 1: What Happened to Insurance Distribution?” we talked about the seismic shifts that have rocked traditional insurance distribution and how insurance companies need to adopt a 2D strategy to thrive in this new environment.
There are four fundamental drivers of the seismic changes, and we reviewed the first one last time.
- New expectations are being set by other industries — the “Amazon effect”
- New products are needed to meet new needs and risks distributed in new channels
- Channel options are expanding
- Lines are blurring between insurance and other industries
In this blog, we’ll discuss how the other three have contributed to an environment of challenges and great opportunities. Those who adopt a 2D strategy will be better prepared to seize the opportunities:
- First, by optimizing the front-end with a digital platform that orchestrates customer engagement across multiple channels.
- Second, by creating an optimized back-end that effectively manages the growing array and complexity of multiple distribution channels beyond the traditional agent channel.
Customer expectations, behaviors and risk profiles are evolving thanks to technology, social trends and other changes going on around us. These are driving the need for new insurance solutions and, consequently, new distribution methods such as the following:
- We all know about autonomous cars and increasing car safety technology. Autonomous cars have created questions about where liability lies in the event of an accident involving one of these vehicles. Volvo has laid down a challenge to the auto and insurance industries with its recent announcement that it would assume liability for crashes of its Intellisafe Autopilot cars.
- The sharing economy, whether it’s for transportation, lodging, labor or “stuff” has created a multitude of questions regarding coverages. People have realized that they don’t need to buy and own cars or other stuff, or pay for hotel rooms when they can use someone else’s stuff for a cheaper price. People who own this stuff can monetize it when they’re not using it.
- Cyber risk has been around for a long time but numerous high profile hacks have made it a hot topic again.
- And finally, the Internet of Things: Connected cars, homes and personal fitness trackers are generating a lot of data with tremendous potential to improve pricing and create new products and services, while at the same time reducing or eliminating risk.
The seismic impact has resulted in companies outside and within the industry developing and offering new products to meet the changing needs, preferences and risks being driven by consumers. There are several relatively new peer-to-peer companies like Friendsurance, insPeer, Bought by Many and the recently announced startup, Lemonade. Metromile addresses the sharing economy trend with its product for Uber drivers, and they address the niche market of low-mileage drivers.
Google Compare, with the focus of “being there when the customer wants it”, has rapidly expanded from credit cards in 2013, to auto insurance in early 2015 and now mortgages in December 2015, while expanding to new states and adding new product providers to their platform with a new model that leverages customer feedback.
John Hancock is using Fitbits as part of its Vitality program, a program started in South Africa, that uses gamification to increase customer engagement and lead to potential discounts. Tokio Marine Nichido is using mobile (in an alliance with NTT Docomo) to distribute “one-time insurance” for auto, travel, golf and sports & leisure. HCC, which was recently acquired by Tokio Marine, has a new online portal for its agents to write Artisan Contractors coverage for small artisan contractor customers.
The overarching theme in all of these examples is that each company is pioneering new ways of distribution — not just new products or coverages. Many are direct e-commerce because they are low premium, quick turnaround/short duration and potentially high volume; not well-suited for agent distribution.
Expanding Channel Options
Channel options and capabilities for accessing insurance are expanding rapidly. New brands are entering the market, giving customers new ways to shop for, compare and buy insurance.
Comparison sites and online agencies and brokers such as Bolt Insurance Agency, Insureon, PolicyGenius, CoverHound, Compare.com and The Zebra, are relatively new to the market and gaining significant market interest and penetration. And then there are new brands in the U.S. selling life and commercial direct online like Haven Life, Assurestart and Hiscox. Additionally, Berkshire Hathaway will be jumping into the direct to business small commercial market in 2016, a potential game changing move for the industry.
Finally, there are some intriguing new players who are focusing on specific parts of the insurance value chain.
- Social Intelligence uses data from social media to develop risk scores that can be used for pricing and underwriting.
- TROV is a “digital locker” with plans to use the detailed valuation data it collects to create more precise coverage and pricing for personal property.
- Snapsheet is the technology platform behind many carriers’ mobile claims apps, including USAA, MetLife, National General, and Country Financial.
The insurance industry is so valuable that companies outside of the industry are trying to capture their share of it. This has created a blurring of industry lines Companies like Google, Costco and Wal-Mart are familiar brands that have not traditionally been associated with insurance, but they have set up capabilities to offer insurance to their customers. The first time most people heard about their expansions into insurance, it probably struck them as unusual, but now the idea of cross-industry insurance penetration has become normalized.
In addition, insurance products are blurring and blending into other products. For example, Zenefits and Intuit are considering bundling workers compensation with payroll offerings.
So, what does all of this mean? There are two key implications from all of this for insurance companies.
First, multiple channels are now available to and expected by customers. There are many ways for customers to research, shop, buy, pay for and use insurance – as well as almost all other types of products and services. Most customers demand and use multiple channels across their relationships depending on what they want or need at the time. They are more ends-driven than means-driven, and will pick the best channel for the task at hand.
Second, multiple channel options give customers the freedom to interact with companies anywhere, anytime, in just about any way. But this only works if these channels are aligned and integrated. An organization can’t just add channels as new silos; they must be aligned, or they will do more harm than good.
So, while distribution transformation and digital capabilities promise an easier, better experience for customers, it actually results in increased complexity for insurers. Orchestrating all of these channel options is hard work and can’t be done with legacy thinking, processes or systems. This expansion of channels requires insurers to optimize both the front end and the back end of the channel ecosystem. In my next blog we’ll discuss these in more detail.