Mon, 30 Nov -0001 00:00:00 +0000
By Chungu Katotobwe
Over the last few decades, continued environmental, operational, and technological changes have led to the development of multiple distribution channels in the insurance industry. Insurers no longer rely solely on traditional channels such as agents and brokers, but have developed new alternate channels to drive growth at lower costs.
As competition in insurance markets is intensifying, cost savings and customer retention has become critical, forcing insurers to look for ways to drive sales and customer convenience while keeping costs low and maintaining profitability. These factors are leading to the emergence of additional channels such as call centers, mobile, and www.
Changes in customer behavior and preferences around products, distribution channels, and processes are also acting as catalysts for the development of alternative channels. For example, insurers are now partnering with banks to help drive policy sales. While these trends began in the more mature insurance markets, developing markets have been following suit.
With advancements in technology, insurers have started exploring ways to develop newer distribution channels in the online space. As customers continue to integrate the use of the internet in their daily lives, this has become an attractive medium through which firms can advertise and distribute insurance products.
We are already witnessing a gradual change in the buying habits of customers as they make use of the internet in the decision making and product buying process. Insurance companies are also effectively using technology to better meet customer demands by better integrating technology with the whole policy sales cycle. They are focusing on speeding up the complete insurance distribution process, while also identifying processes that can be automated to improve efficiency and profitability. These initiatives are enabling insurance firms to scale up their business models by strengthening their internal processes with a goal of better customer service.
The rise in premium volume was aided by the overall improvement in the global economy in 2010. Growth has been higher in Asian and other emerging markets. Insurers today leverage multiple distribution channels to reach and engage with their customers. While insurers have traditionally sold insurance products through brokers and agents, other distribution channels such as call centers, internet, and mobile have been rapidly gaining momentum.
Evolving customer preferences and intensifying competition in insurance markets have led to the emergence of multiple low-cost distribution channels. Growth in these channels has also been aided by recent technological innovations that facilitate the ability to illustrate product benefits, shorten customer response time, and simultaneously serve multiple customers. The new channels also allow advisors and customers to compare multiple products without much effort, helping them choose the product that best suits their profile. Penetration of these new channels has been the highest in mature insurance markets such as Western Europe. Although, the rest of the world is gradually catching up.
The new channels have provided insurers with opportunities to increase sales while keeping costs low. They have also increased customers’ convenience when buying insurance products. Direct sale of insurance policies using new online channels is relatively higher in Europe when compared to other regions, though the existing maturity of the overall online infrastructure and household internet penetration reflect differences even within Europe’s markets. Insurers are therefore taking care to reduce channel conflicts with agents when developing their own direct channels.
Facing a challenging operating environment of their own, banks have been motivated to generate additional non-interest income by selling additional risk-based/wealth management products and services like insurance to their customers. Insurance firms are also focusing their efforts on the development of alternate channels by partnering with supermarkets in the form of joint-ventures or in-store sales. Insurers benefit from these relationships by being able to reach a wide potential customer base at reduced cost, and also by being able to leverage established brand names in the market. This pattern is more evident in the North American insurance markets.
As customers use multiple channels for buying insurance products, online channels are gaining prominence, though somewhat less than initial industry expectations. In many markets, customers still tend to approach agents when looking for life insurance policies. A common trend witnessed across regions is that customers now search for information on insurance products online before approaching their agents or insurers.
Customers are also leveraging social media platforms to obtain product feedback from others. As such, insurers are now striving to provide a consistent consumer experience across all of these channels. Insurers are utilizing multiple distribution channels to reach out to customers and provide them with a consistent, positive experience.
Increased competition and noticeable changes in customer behavior and preferences paved the way for the growth of newer channels for policy sales. Many of these channels evolved as a result of insurers’ efforts to improve their operational efficiencies, aided by technological advancements. These channels now help insurers directly reach their target customers, bypassing traditional intermediary channels. Initially these channels were used to provide only product, or policy related information and to advertise, however insurers now leverage these channels to directly communicate with customers and sell suitable insurance products.
With these new developments, customers’ methods of researching and buying insurance products also changed over time. With the increased penetration of the internet and smart phones, customers now prefer to gather information on various products and services offered by multiple insurers and tend to compare before making a final decision.
The internet has developed into an important channel to gather information on insurance products, and the increased popularity of social media is also expected to affect how customers buy insurance products.
Many customers now seek feedback on insurance products on social media sites and include the feedback in their decision-making process.
On the business front, insurers are reacting to these trends and are coming up with solutions that attempt to better meet customer expectations.
They are also effectively leveraging technology to reach customers and quickly incorporate their feedback. They are focusing on building an effective and comprehensive distribution network while also working to break-down the complete policy sales process to identify components that can be automated.
Four such trends, witnessed across insurance channels that are explained in detail are: Rise in customers’ use of the internet to buy insurance products, increased use of social media as a distribution channel. Rise in usage of technological solutions to automate the underwriting process and increase direct sales.
Technological innovations in the insurance industry have led to a gradual change in customers’ habits of buying insurance products.
The technology trends I have covered are not exhaustive in nature, and only current prominent trends have been looked at. Look out for part II.
The author is a consultant
at Insurance Culture Consultancy