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September 17, 2019

The Evolution of Regulated Services

Summary:

Even in the language we use (“distribution,” “sales,” “supply chain”), we talk about the purchase as a good rather than a service.

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In part one of our series, we explored the evolution of traditional marketplaces toward fully integrated experiences that include complex industries such as regulated services. In this article, we’ll take a more focused lens on the insurance industry and the value that can be created through digitally connected ecosystems.

Let’s break this out into the four key stakeholder groups that would benefit from a connected insurance marketplace:

  • Customer
  • Adviser
  • Carrier
  • Reinsurer

It’s all about the customer…duh!

Let’s face it, most people don’t really enjoy buying insurance. Most of the time, they are making the decision under pressure (they’ve been hard sold) or appeasing social norms (“everyone says I should buy insurance when I have kids”). What they really want is to get through the process as easily and quickly as possible.

However, as an industry, we require personal data points to predict and manage risk through a pooling of profiles. For a customer, the only way to obtain insurance is to provide enough personal data to allow an insurer to make an informed risk assessment and product offering — and the process can be extremely time-consuming.

Data is inherently built into insurance. For the customer to have a great experience, we need to collect the information as easily and unobtrusively as possible (no more needles and cups…please!).

Convenience and accessibility are key decision-making factors for consumers today, which is why we’ve seen major industries like banking and retail digitize much of their business processes. An integrated marketplace can remove the hassle and wait time for clients by digitizing checkpoints and interactions. The less paperwork and redundancies that are involved in the process, the better the experience will be for the client, which translates into more revenue for businesses.

Advisers matter more than ever

For complex products like life and health insurance, most consumers decide on buying these products after a series of conversations with a trusted professional. The adviser in this equation is there to educate, support and guide the customer’s decision toward the best solution to meet their needs.

The real role that advisers play is coach and therapist. For great advisers, most of the time spent with clients is less about the products and numbers, and more about understanding the people and their goals, dreams and fears. Therefore, advisers have the essential role of understanding various carrier products and making recommendations based on what they know about the client — all while adhering to industry standards and compliance regulations.

See also: Designing Workplace of the Future  

This is very difficult to do at scale with paper-based processes. One of the benefits of a digital marketplace is supporting advisers with “product discovery.” Searching and comparing insurance products can be done much faster through the use of technology. Marketplaces also increase options for advisers, thereby creating value and a better experience for clients. Having a larger pool of insurance products to choose from, advisers can leverage technology to filter options based on the client’s goals and financial situation.

Using technology to alleviate manual processes and automate compliance will enable advisers to spend more time doing what they do best; coaching and supporting their clients.

Advisers care deeply about people. Insurance is about protecting people. Finaeo is about supporting advisers through the use of technology.

Carriers are moving toward digitization

About two months ago, I was in a carrier’s office discussing the future of insurance distribution and the role it would play in the customer experience. We started getting into the subject matter and sharing examples of areas where today’s experience is broken. All of a sudden, in a proud moment, an executive almost stood on a chair to share a profound insight:

“Six months ago, our organization came to a great conclusion; we have to focus on the customer.”

This “perceived insight” seems so trivial, but, in fact, is the tipping point of a billion-dollar incumbent understanding what matters most: the customer experience.

By providing a digital-first experience, carriers can help prospective clients with education, analysis and recommendations to meet their individual needs. A seamless experience means policy-holders will enjoy, as best as they can, the decision to spend money on the insurance they likely aren’t excited to pay for. Making the customer experience as great as possible will provide carriers with a significant competitive advantage.

An integrated digital marketplace helps insurers in a few ways:

  1. Access to data to make better risk decisions
  2. Understanding of how products are performing in real time
  3. Increased visibility in the moment of purchase

Risk management is about math. Insurers use models to predict if the premium that consumers pay will be profitable based on their health. Insurance companies compare the client’s personal information to their internal risk guidelines (known as “underwriting rules”) to produce a price in exchange (i.e. marketplace) for a policy.

Carriers that obtain the right information digitally and automate it against their underwriting models will have the opportunity to make better decisions at scale. In addition, they will have the opportunity to layer on technologies such as machine learning to drive insights on product manufacturing that previously would be unseen. These “hidden secrets” are the key to unlocking the future model of insurance.

Once carriers can optimize their understanding of customer data and risk management, they can start to develop a more competitive product offering based on their ability to understand the performance of products in specific markets and customer segments. Carriers that are digitally connected with their customers will have the opportunity to create, deploy, analyze and iterate on products not in multi-year cycles but in real time.

Lastly, buying insurance is all about a series of choices, but what truly elevates a carrier is the ability to capture the attention of the “buyer” (which could be the adviser or policyholder, depending on the distribution model) in the moment of purchase. Today, insurance is an open — mainly analog — marketplace where buyers can choose from an array of carriers to obtain the coverage they need. Carriers are competing for business against their competitors on a daily basis and are relying on their brand strength to win the business. However, in today’s world, people spend most of their time online. Therefore, carriers need to adapt their marketing efforts to stay competitive and create content that resonates with modern consumers.

Once connected to a digital marketplace, carriers can start to develop more targeted “in the moment” marketing and advertising campaigns and quickly leverage modern marketing strategies such as A/B testing, retargeting and segmentation.

Reinsurers can change the game

In an industry centered on risk management, the ultimate risk-bearer, the reinsurer, holds one of the most important and influential roles in the market.

As with many financial markets, the availability of capital is more flush than ever before, and, by nature, value is being eroded. The traditional relationship between supply-chain participants has shifted, and the expectations of value creation are stronger than ever before.

In any market where a pyramid distribution model exists, there is an inherent risk of channel conflict. It’s an accepted and known reality of insurance that co-opetition exists and that, as a result, there are trade-offs made in growth strategies that stem from a desire to maintain the “perceived” conflict.

Every partner that a reinsurer works with ultimately sends the reinsurer similar information, and, by helping the industry standardize these data requirements, reinsurers can help create a more efficient, compliant and valuable relationship with the industry.

Helping carriers move toward a digital-first distribution model will ensure that reinsurers are capturing the most information possible to generate a better view into how risk management decisions affect their partner’s distribution strategies. This symbiotic relationship can now be focused on strategic value rather than capital access. In short, money is fluid and available; partners are hard to find.

Today, the industry looks at exchanging insurance as a buy/sell model. Even in the language we use (“distribution,” “sales,” “supply chain”), we talk about the purchase as a good rather than a service. Financial services is a deeply personal and complicated experience for most people. An integrated marketplace experience allows everyone to focus on the most important part: the customer relationship.

Each stakeholder in the experience should be seen as a partner, not as a buyer/seller in a service marketplace. Ultimately, to create the best experience, the industry needs fully integrated and digitized marketplaces that provide today’s digital customers with the experience they expect and deserve.

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About the Author

Aly Dhalla is the CEO/co-founder of Finaeo, a venture-backed insurtech startup that is reshaping insurance distribution to help independent advisers thrive in a digital era.

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