Though cable TV has technically been in use since 1948, broadcast television was the staple of home entertainment for decades. It offered a handful of channels, but most viewing was done on ABC, CBS, NBC and PBS — the big four. As the number of satellites grew and the number of cable providers proliferated, so did channel options. According to Nielsen, today’s average home receives 189 channels of cable programming.
This has obviously detracted from the viewership of the primary big four networks. To counter, the networks and early cable channels simply added new, sometimes niche channels to their network ecosystem to reach new market segments. NBC, now owned by Comcast, operates dozens of channels, such as CNBC, MSNBC, Syfy, USA Network, Bravo, The Weather Channel, and many more. And now cable providers, along with the big four, are being challenged by streaming TV via Netflix, Hulu, Amazon and others, which is popular with the younger generations.
Is this analogous to what is happening in insurance? It could be, especially if we back up to consider how insurance is changing at its core because of a reduction in “viewership” and the changing demographics of younger generations. The term ‘channels’ seems to be significantly appropriate, because of the fact that insurance is undergoing its own form of channel proliferation and change. In order to look at channel development more closely, I’ve drawn upon many of the insights found in our Future Trends 2017 report.
Complexity and relevance
[inlinetweet prefix="" tweeter="" suffix=""]Insurance is often a complex product that is hard to research[/inlinetweet], buy and use, requiring a great deal of thought on the part of customers. It is an enormous problem for the insurance industry because every gap and point of complexity looks like a giant bull’s-eye for potential startup solutions. Those who can develop simplified products and make insurance easier for customers to understand and buy stand a good chance of capturing business from companies whose products and processes remain complex.
Innovators started attacking this opportunity years ago, however, led by online insurers like Progressive, Geico, USAA and Esurance, and aggregator and comparison sites like Compare.com and others. And in the InsurTech world, we see companies like Lemonade, Slice, Haven Life, Quilt and others are now challenging these innovative pioneers. They recognized the tremendous opportunity offered by making the process of researching and buying auto, property or life insurance easier, as well as making the product meet expectations of a new demographic, which subsequently succeeded in stealing considerable market share from traditional carriers with agency distribution.
But it isn’t just complexity that can drive insureds toward new products — in many cases, it is convenience, relevance and placement. A recent example is the partnership between startup CarSaver and retail giant Walmart. In the pilot program, Walmart will put CarSaver kiosks in stores in Houston, Dallas, Phoenix and Oklahoma City that allow consumers to select a car, finance it and insure it.[i] CarSaver lists nine well-known auto insurance brands on its website as participating companies.
InsurTech startups have responded to demand by facilitating channel development. CB Insights reported that 18 of the top 20 deals in InsurTech since 2015 were focused on P&C insurance distribution. These 20 deals accounted for about 82% of the $2.02 billion aggregate funding since the start of 2015.[ii] As of January 2017, Coverager listed 179 global companies classified as an “Intermediary” that are either an aggregator, provide online quotes, provide online purchasing, or any combination of the three.[iii] On-demand insurer, Slice, is currently one of the best examples of relevance meeting convenience in channel development. Slice uses homesharing sites, such as Airbnb and HomeAway to distribute temporary rental insurance. Allstate would be an example of a traditional insurer prepared to step into the same market space, now offering homesharing insurance in six states.
Other innovative technology startups are occupying unique positions in the distribution space as enablers and connectors. Like selling pick axes to gold miners, their role is to simplify distribution processes for agents, brokers and carriers. AskKodiak, BoldPenguin, Indio and Insurr, for example, offer digital platforms to automate workflows and connect agents/brokers, carriers and risks in the commercial space. Others like Denim, MyNameFlow and InsuranceSocial.Media provide social and e-mail marketing platforms to insurance companies and agencies to link buyers with them.
Despite all of the activity in the front-end of the value chain, most insurance is still ultimately sold through human interaction, either on the phone or face-to-face. Traditional insurers that are considering preparing their operations for additional channel use should move forward with more than just a hunch. Are consumers prepared mentally to jump insurers if presented with new channels? Would new channels allow insurers to reach new market segments?
Majesco’s consumer and SMB research showed that the answer is, “Yes.” There is significant interest in at least considering new, non-traditional ways of obtaining insurance in the next 3-5 years. Among most generations of consumers, nearly 40% indicate they would be likely to try several alternative insurance acquisition methods. As consumers gravitate beyond traditional options, they will explore and seek alternatives across a wide spectrum of choices, regardless of whether or not their insurer offers them. Insurers who remain committed to only the agent channel will likely lose out on new customers and potentially existing customers who will seek alternative channels, placing their relevance and growth strategies at risk.
With the customer in control, the need for an ecosystem of channels is established. The remaining hurdle for some insurers is simply where to begin.
Interestingly, many startup initiatives are organized as managing general agents (MGAs). The MGA structure is an ideal testing ground for new product innovations, programs and markets, because it allows the company to rely on its partners for capital, core systems and the carrying of risk while it focuses on assembling all of these components to meet the specific needs of unique markets and niches. Conning reported that the MGA market accounted for 14% of commercial lines business in 2015, and has been growing at a faster rate than the P&C market as a whole.[iv] But life focused MGAs from InsurTech are also emerging rapidly.
Other insurers will find it simplest to create a value-added channel that ties in closely with niche markets they may already serve. Majesco executive, Bill Freitag, gives some great examples in his last blog, “It’s the Customer Experience, Stupid”. Some insurers will grow their channel development through M&A activity, acquiring InsurTech startups or those who already have a blueprint for new channels.
Utilizing any of these approaches may work, but the foundation of all of them is the same. Innovative channel development begins by understanding insurance need, insurance use and customer experience enhancement. The best new channels will be those that exist at the point of need and fulfill the need without friction. To match those requirements, insurers must have created a flexible system for data acquisition, a scalable real-time solution for policy administration and lightweight approaches to testing and rollout. Cloud solutions and SaaS offerings are well-suited to these needs and can provide the flexibility needed for both new initiatives and low-cost testing methodologies.
Collaborations and partnerships will be common in most cases of channel development. A SaaS solution provider such as Majesco can often act as the bridge between the innovative culture of the startup and the deep experience of the traditional insurer. They can also design a framework for adaptability that will accommodate new channels without compromising the capability for managing risk.
Just like TV channels shifted, expanded and changed … so too should insurance channels. If not, insurers risk relevance and growth, two critical factors for a fast paced changing marketplace.
[ii] “Broker Software, Digital Distribution, And More: Activity Booms In Property & Casualty Insurtech,” CB Insights, December 13, 2016
[iv] “Managing General Agent channel continues growth at rate exceeding P&C market: Conning,” Canadian Underwriter, July 25, 2016