The Changing Face of Insurance Distribution in 2022
- Insurance distribution has become more sophisticated and competitive.
- Insurers are realizing the need to pivot and invest in digital solutions in the near-term future if they want to gain or retain a competitive advantage.
- Insurers don’t have to depend on large investments to make scaling digital insurance distribution possible. Simply thinking creatively and leveraging existing insurtech solutions to find new revenue streams can give insurers a shortcut for growth in today’s dynamic insurance markets.
Insurance distribution has become a global trend, especially during the times of pandemic. Insurance distribution is the process by which an insurer distributes its products to consumers, whether they are selling, proposing to sell, or any other steps that lead to sealing an insurance contract.
The distribution of insurance can be done through a variety of channels as regulated by the EU under the insurance distribution directive (IDD). These channels include insurance intermediaries, such as agents and brokers, and insurance companies that sell directly to consumers. Ancillary insurance intermediaries, such as travel agencies or airlines, could also distribute insurance by offering it as a value-add service to their primary offer.
How insurance is distributed has a direct effect on the availability and affordability of insurance, and hence, the competitive advantage it gives insurers. In this article, we’ll explain why certain insurance distribution trends are here to stay and how insurers should prepare for the future of insurance distribution in 2022 and beyond.
Factors influencing the evolution of insurance distribution
Like many other areas of economics, insurance distribution has evolved according to market forces and consumer demand. Over the decades, it has become more sophisticated and competitive as a result.
For example, there was a time when career life agents, also known as captive agents, were the ones who mainly sold life insurance. As competition in the insurance market proliferated, independent agents—who represent a number of insurance companies and sell many different types of policies—began to grow in popularity to meet the demands of customers that were becoming more savvy for choices.
The channels for insurance distribution have also evolved significantly alongside technology. Remember the door-to-door salesman, cold calls via landline telephones, and direct mail? Today, much of these have been replaced by the impact of digitization. Today’s customers can sign up for policies on the internet or even through their mobile phones via an app.
Fast forward to 2022, we can observe multiple driving forces reshaping insurance distribution. According to a 2021 report by PwC, the three key driving forces shaping insurance distribution in current times include:
Shifting relationships with intermediaries
Insurance is an industry that dates back to as early as the 12th century. It’s not surprising that many relationships with intermediaries within the insurance industry are based on decades of trust.
The problem with this is that it has created inertia for many traditional insurance providers. However, as new players enter the market with competitive products, many intermediaries have shifted the focus from honoring traditional relationships to forming new partnerships. This enables them to better solve the problems that today’s insurance buyers need.
Changing customer demands
Many insurers held back by legacy systems and old-fashioned business models struggle to meet the expectations of customers who have become used to the fast and personalized service from other, digitized industries.
Now that millennials have become the largest insurance target market, their needs can no longer be ignored. Thus, these digital natives are one of the strongest driving forces behind the transformation of the insurance industry as a whole, including insurance distribution.
The changing expectations of this digital generation have affected every type of insurance model. Some of the observable results include the breakdown of traditional carrier-distribution demarcations, companies joining forces to form ecosystems, and intermediaries stepping out traditional roles to explore new ways to meet evolving customer demands.
Scaling in direct channels
With digital natives having a stronghold over the direction of insurance distribution, many insurers have increased their efforts and investments in scaling their direct distribution platforms.
As markets grow in awareness towards e-commerce and embedded insurance services, insurers who offer online offerings have a competitive advantage. However, many traditional insurers face challenges to make the digitisation shift, leaving them struggling to scale and fully compete on the main-stage. As a result, many new insurtech startups with greater agility to adopt digitisation have disrupted insurance distribution channels.
How the pandemic accelerated changing market forces
While these three key driving forces shaping insurance distribution existed before the pandemic, the sudden economic and lifestyle changes triggered by the pandemic exacerbated the impact of these forces.
A report by Mckinsey & Company identified three ways insurance distribution has been accelerated by the pandemic on the back of these driving market forces.
A shift to digital tools
Many physical sales forces and intermediaries have had to quickly adapt from in-person interaction to finding new ways to build relationships with prospective clients. A US agent survey conducted in January 2020 showed that 90% of sales conversations and 70% of ongoing client conversations for life insurance agents relied on in-person meetings. By May 2020, both numbers dropped to less than 5%.
The need for physical distancing during the pandemic had accelerated the demand for digital insurance distribution. It’s no longer simply a channel that digital natives prefer. It’s now a necessary platform that virtually everyone needs.
A rise in self-service and customer centricity
As insurers shifted to digitize their channel distributions, they also had to shift towards self-service models that deliver a better customer experience. This requires moving away from legacy products that require offline execution, such as physical signatures or police reports, and moving towards digital self-service tools such as digital claims.
In order to execute self-service models while maintaining security and minimizing insurance fraud, insurers had to utilize global insurtech trends such as blockchain and artificial intelligence.
From offline to online processes
The pandemic boosted awareness and changed consumer demands for healthcare insurance. Yet, hand in hand with that, offline legacy processes such as medical underwriting or physical medical exams were no longer as feasible on a large scale.
Insurers had to adapt their processes to become online-friendly. In some cases, technology trends in healthcare insurance such as integration with IoT and virtual reality helped insurers include telehealth as part of their processes. In other cases, insurers had to review how they make use of external data and adjust fluidless thresholds to expand the number of customers who can forgo a physical medical exam so they don’t lose potential clients.
The benefits of digital insurance distribution
With digital distribution of an ever expanding proliferation of insurance products reaching unprecedented levels, more insurers are realizing the need to pivot and invest in digital and customer-centric solutions in the near-term future if they want to gain or retain a competitive advantage.
A 2021 venture capital investment report published on GlobalData reaffirms this trend to gain competitive advantage by investing in the adoption of digital technologies. The report stated that:
But what about insurers without access to venture capital investment? Thanks to insurtech services providers, they don’t have to be left behind and can still jump on the latest insurance distribution trends.
How insurtech supports evolving insurance distribution
Insurtech services allows insurers the benefits of digital insurance distribution without needing the investment of building digital distribution channels from scratch.
Since insurers don’t need to build systems from scratch, they can focus on quickly developing products to meet rapidly changing consumer demands in a dynamic market. This gives them greater agility than industry giants slowed down by their legacy systems.
Most importantly, insurers can offer a higher quality of service when they rely on existing insurtech solutions to meet their insurance distribution needs.
Mckinsey & Company had recently reported that “although digital access in insurance has increased almost 30% since the pandemic began, customer satisfaction for digital delivery in insurance was the lowest compared with all other sectors.”
The top reason customers cited for their dissatisfaction was “hard-to-use tools”. This displays the risks insurance companies take when investing in building systems from scratch. However, by adopting insurtech solutions, insurers have the assurance that they’re leveraging digital systems proven to work for other industries and adapted to meet specific insurance needs.
A digital insurance distribution success story
To showcase how insurtech and cloud computing solutions can help insurers gain the benefits of digital insurance distribution without compromising time-to-market speed and service quality, we’d like to share a story of one of our clients, Maiden Life & General (MLG).
Despite strong consumer interest in MLG’s model and products, MLG was struggling to find the IT resources to build the necessary functionality for their current distribution partners.
“Many times when we wanted to launch an insurance program with a new partner, we experienced long delays. Some programs weren’t even going live due to a lack of IT resources. It’s connected to the type of distribution partners we’re working with – they’re usually not core insurance distributors and have some other key business, such as finance or banking. Thus, their IT department treats insurance as a second priority, so resources are scarce, and there is always something more important.”
- Daniel Deckers, MLG Managing Director
In the search to offer a simple, plug-and-play system that enabled their partners to distribute and handle insurance products from wherever they were based, Daniel Deckers turned to us for help.
After looking into their needs, we created a seamless, end-to-end customer journey platform for the MLG team to handle the administration of their policies and premium collection. Today, this platform has become a key strategic component of their partner solutions.
By being able to simply plug into the platform integrated with white labeling capabilities, MLG’s distribution partners could now offer a diverse catalog of insurance products as well as tailor their online offers to meet the specific needs of each distribution partner.
The result for MLG? They improved their time-to-market by 50%, earning them a significant competitive advantage while making things simpler for their partners.
The path forward to scale digital insurance distribution
Scaling digital insurance distribution is an important part of business during times when market forces are reducing face-to-face interactions. Shifting to a more digitized, self-service customer experience can allow insurers and their sales force team to reach more customers and put more products in the hands of customers who need them.
The good news is insurers don’t have to depend on large investments to make scaling digital insurance distribution possible. Simply thinking creatively and leveraging existing insurtech solutions to find new revenue streams can give insurers a shortcut for growth in today’s dynamic insurance market.
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