January 21, 2019
Modernizing Distribution – Now
by Brad Denning and Atanu Ghosh
Customers and distributors now expect instant gratification in day-to-day insurance transactions.
“Fast and now” is what best describes the current insurance market. The internet has single-handedly changed how customers, distributors and even home office employees expect instant gratification in day-to-day insurance transactions. Couple that with increasing market pressures to maximize profit and lower cost, commoditization of products and the ever-increasing speed of business, it is only natural that distribution has emerged as a leading topic among executives at all carriers. Now is the time to modernize distribution.
First, let us begin with understanding the structural drivers that have disrupted or can very quickly disrupt current distribution models:
Changing customer demographics, expectations and needs have left insurers in a discombobulated state, with unclear strategies to optimize distribution channels, product mix and areas of investments. On one hand, customers today seek holistic financial and health wellbeing advice through a multitude of channels based on demographic and affluence levels. On the other, insurers are constraining distributors with standardized product offerings that make it hard for them to appease customer needs for flexibility and personalization. Customer journeys now start online for almost every purchase–including financial products–and, unlike in other industries, most end with an in-person interaction based on product complexity. This presents an opportunity to improve customer experience, intimacy, and fulfill the customer need using the distribution channel. However, slower product release cycles compound this problem and often leave distributors in a jarred state between cross-selling, up-selling or unfavorably switching carriers. Key events in a customer’s lifecycle–while slower in the P&C space–are much more frequent in the Life and Investments space, and customers are asking for short-term rewards against long term benefits. Carriers betting on closing technology gaps to increase customer intimacy are not moving fast enough, leaving the distributor with an “after-the-fact” and reactive (versus proactive and predictive) interaction. All these drivers continue to impact customer satisfaction and perceived experience, and widen the gap between the customers and distributors, overall slowing industry growth and profit realization.
A shrinking agent force is perhaps one of the biggest causes of concern for carriers who are heavily intermediated. Lack of succession planning, an older generation of producers coming close to retirement, reduced interest from newer generations to work as distributors, and changing customer behaviors have led to the consolidation of smaller distributors by bigger brokers and wholesalers. This has inadvertently reduced shelf space for carriers and increased pressure on competitive differentiation for product and price. The once-preferred captive channel is becoming cost-prohibitive to maintain as there is a stronger pull to invest in cross-distribution capabilities such as digital and direct. Technology constraints prevent carriers from expediting underwriting or even offering flexibility in product mix or incentive plan design: all necessary drivers to close the sale.
On top of these impediments, the regulatory landscape is changing. While the recent fiduciary ruling from the DoL benefits customers with increased transparency, it increases pressure on fees, which impacts compensation plans and the need to introduce “advisement fees”. This also impacts the traditional advisory model and distributors must quickly adapt sales processes and carrier relationships to increase or maintain customer engagement as distribution moves from “best-suited” to “best-interest”.
To combat these drivers, carriers have invested in shared service models and centers to allow producers to focus on tasks of higher value, implemented wrappers on legacy systems to provide agility in commissions processing and invested in process automation to increase operational efficiency. However, these disparate efforts do little, even as a whole, to increase the overall value for distributors or help solve for the holy grail of differentiated experience. Despite these factors, there is immense opportunity to improve distribution capabilities and, with the implementation of a new distribution management system, streamlining downstream systems and processes is not as daunting a task as it may otherwise seem.
The Transformation Journey
The pace of change in distribution prompts carriers to look at solving for issues and opportunities with technology, tooling, and platforms. However, it goes beyond just finding the right distribution platform that solves the table stakes business need of managing distributors effectively, processing compensation accurately, and providing a digital portal to improve the producer experience.
There are four phases to this transformative journey, and it begins with defining the distribution and compensation management strategy to discover and understand the biggest roadblocks across people, process and technology.
With the vision defined, it is time for a (b) mobilization or inception phase where business leads select a vendor platform, define the product features for their future state, all of which is supported by (c) the design of an operating model that can scale and flex to meet growing needs of the business with services and processes to deliver that elusive differentiated producer experience. Finally, the vision and future state is realized by (d) implementing the platform and the supporting operating model.
While each carrier’s current and future state needs are unique, there are common opportunities (that often turn into roadblocks if not adequately planned for prior to implementation) to truly think outside of the box and deliver a transformed–not merely updated–distribution experience:
Recruitment, Contracting and Onboarding: The producer’s first touchpoint with a carrier provides an opportunity to make a great first impression. The onboarding process itself must be streamlined and shortened with the highest degree of automation and self-service that lets producers drive the process on their own. There are also opportunities for carriers to provide “white-glove” services to larger distributors for mass-onboarding, or assisted onboarding for new first-time producers. Modern distribution platforms provide a digital, automated experience that can be configured to meet the carrier’s needs for a great first impression and, with a clear channel strategy, can greatly contribute to positive and sticky producer experiences.
Producer Management: This area tests a carrier’s operational efficiency in managing high frequency events–ongoing hierarchy management, broker of record changes, licensing and appointment requests, to name a few–where any delay prevents producers from placing business or worse, increases a carrier’s risk of non-compliance. A clear definition of services associated with licensing and appointments as part of the operating model strategy, combined with the flexibility of modern rules-based appointment processing, alleviates significant bottlenecks and always keeps producers compliant and ready to sell with just-in-time appointing, automated backdating of appointments based on policy effectivity, or even self-delegated hierarchy management for larger distributors.
Compensation Management: Perhaps the biggest area driving producer experience, trust, and satisfaction is compensation management. Producers work hard to earn the business and expect flexibility in plan design, accurate and timely commissions payouts, and incentives. Unfortunately, this area also drives the greatest amount of operational inefficiencies and producer requests or complaints due to legacy systems and processes. Modern platforms provide business-user friendly rules engines that allow for easy design of compensation plans on-the-fly, incentive options such as event or role-based advancing, bonuses, variable-interest loans, campaign management, vesting rules management, retroactive adjustments, splits between producers and producer debt management across channels, companies or even hierarchies. As part the transformation journey, compensation is where carriers must carefully assess, design, and deliver features to ensure minimal disruption to producers for business-as-usual activities while extracting the maximum business value from the transformation.
See also: The Future of P&C Distribution
As insurance carriers migrate from legacy platforms to flexible, modern distribution management and compensation solutions, the art of the possible becomes infinite. No longer will rigid, crippling legacy systems and manual workarounds hinder a carrier’s ability to flexibly design new compensation plans, roll out new products, perform advanced analytical exercises on consolidated data, or digitize the field’s experience. What previously required heroic IT efforts will become business-as-usual, thus upping the ante for carriers who are beginning to consider implementing a modern distribution management and compensation solution.
In sum, distribution and compensation have quickly moved from traditional back-office functions to prioritized elements of the value chain, primarily due to the impact producer experience can have on a carrier’s production. Such organic conditions provide the perfect ecosystem to undertake the distribution and compensation transformation journey with the aim of increasing distributor production, capturing savings from operational efficiency gains, and establishing an operating model that scales with business growth. Changing the perception that distribution and compensation functions are no longer menial back office functions, but instead, the carrier’s greatest opportunity to attract and retain distributors–and thus, customers–will help business leaders prioritize this initiative at an enterprise level. After all, it starts with carriers empowering their producers so customers can get products or services “Fast and Now.”