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What Happened to Insurance Distribution?

A bright market pundit could probably offer up her ideas on just which day it was that insurance distribution fell markedly out of sync with retail technology and consumer expectations. Was it the day Amazon was launched? Was it the day that the first app was purchased on the app store? Did it involve Google search engine optimization or the switch from print to email or social media marketing?

It is interesting and a little painful to think about, but most experts would say that, of course, it wasn’t just one day or one event. It has been building slowly, silently and stealthily…where the insurance industry allowed the friction of change to impede modernization and place itself at risk. Shifting consumer mindsets and rapidly evolving markets, like tectonic pressures, built up along a fault line, and then one day the ground shakes.

And it didn’t stop shaking.

Now the industry is waking up and finding itself on a precipice in the midst of continual, seismic shifts. A new business environment has arrived. The environment is different because of the complexity, breadth and depth of converging factors and global changes. To an industry steeped in centuries of tradition, this new business environment represents significant disruption. The shifting and realigning of fundamental elements of the business require us to erase the idea that we can ease our organizations into the new era with minor adjustments. Instead, we need to match the rhythm of perpetual aftershocks with a model that sways to the beat of a new agenda.

We need to reinvent the insurance business model so that it is built to predict seismic activity and capture future opportunities. Today’s insurers are moving from product-driven to customer-driven strategies; from reliance on limited distribution channels (such as agents) to an array of channels based on customer choice; from line of business silos to customer experience threads for all products across all lines; from simply containing risk to providing personal risk management; and from siloed solutions focused on transactions to a platform portfolio that bridges together real-time interaction across all products and services for customers, giving them an Amazon-like experience.

Together the changes represent a disruption in the industry’s traditional market rhythm. The industry’s response demands two concerted efforts:

  • First, it requires optimizing the front end with a digital platform that orchestrates customer engagement across multiple channels.
  • Second, this multi-channel environment must be supported by an optimized back-end that effectively manages the growing array and complexity of multiple distribution channels beyond the traditional agent channel.

Together, these two efforts compose a “2D Strategy” for insurers to succeed in this new business environment of customer engagement and channel choice. What composes the 2D Strategy? It is simply digital and distribution. Majesco’s new thought leadership report, “A 2D Strategy: Distribution and Digital for High Performance,” discusses this two-pronged strategy in more detail.

But first, let’s spend some time diagnosing the developments that have led the industry to this point. We see four fundamental drivers:

• New expectations are being set by other industries; the “Amazon effect”
• New products are needed to meet new needs and risks distributed in new channels
• Channel options are expanding
• Lines are blurring between insurance and other industries

New Expectations

Customer expectations based on their experiences with other companies and industries are setting a new bar for customer experience and are a key driver in expanding distribution choice. What are these companies doing that customers like so much? Fundamentally they offer choice, create delight and surprise and make both a personalized and emotional connection.

– Amazon and Netflix have a huge variety of products and use data and analytics very well to know what customers would like, before they even know it themselves.
– Southwest makes things simple and transparent and has a great culture that creates a welcoming environment for customers.
– Google is the very essence of surprise and delight – every time you do a search you never know what you’ll find.
– Costco customers experience a “thrill of discovery” every time they go there and have access to “members only” deals on a large variety of products and services – including insurance. Availability creates a seamless line between online and in-store.
– Apple designs all of its products and services to create a feeling of simplicity, function and elegance and makes shopping, buying and servicing available through multiple channels.

Underpinning these new expectations is the use of technology, with mobile as a key enabler. Why? Simply put, mobile empowers customers. It used to be called the third screen (behind TV and the PC), but now it’s the first screen. Pew says that 68% of all American adults have a smartphone now, and some younger age groups are hitting saturation levels. Other studies show that more than 40% of organic search engine traffic now comes from mobile devices, and 50% of insurance shoppers start their shopping process using mobile.

We frequently talk about mobile enabling ANYTIME and ANYWHERE interactions. Recent Google research quantified the times and places consumers use mobile for researching and purchasing products. Usage levels generally increase as the day progresses, peaking in the late evening. But if you look at the first two and last two parts of the day together, an estimated 46% of mobile research time is spent in the early morning, late evening or when customers are in bed — not an ideal time to meet with an insurance agent. A majority of this activity is done at home, but almost as much is done outside of the home.

Customer experiences created by other companies and customer empowerment created by technology are powerful forces shaping customer expectations and driving the need for insurance companies to adopt a 2D strategy. In my next blog I’ll explore the other drivers on our list: new products, expanding channel options and blurring industry lines.

Thought Leader in Action: At Starbucks

From the You Can’t Make This Stuff Up Department: Steve Legg took an important step on his path to becoming the director of risk management of Starbucks to avoid having what looked like a bad pun on his business card. He had earned his Associate in Risk Management designation, but that meant his name appeared as Legg-ARM. So, he says, he went on to earn his Chartered Property & Casualty Underwriter (CPCU) designation, because it is listed before ARM. His card now (safely) reads “Steve Legg, CPCU, ARM.”

But I’m jumping into the middle of the story, in this second in our series of Thought Leaders in Action. (The first, with Loren Nickel, director of risk management at Google, is here.)

To begin at the beginning, I’ll provide a summary of Legg’s background, then follow with the story of how he earned his prestigious position, some detail on Starbucks and how it manages risk and some insights from Legg for other risk managers.

legg
Steve Legg

His bio

Legg, who is 46 years old, has been at the Starbucks headquarters in Seattle since June 1997. His responsibilities include global corporate property and casualty insurance and risk financing for the company. Legg reports to the treasurer of Starbucks and heads a risk management team of 13 professionals, with two-thirds involved in claims management and the balance working in risk financing and risk transfer, its risk management information system (RMIS) , internal reporting and captive management. Starbucks has 22,519 stores in 66 countries, with a targeted growth rate of 1,650 net new stores during this fiscal year. Starbucks, the name inspired by Herman Melville’s novel Moby Dick, has one of the most recognized logos in the world. Its mission statement, developed by its founder Howard Schultz, is “to inspire and nurture the human spirit one person, one cup and one neighborhood at a time.”

Before joining Starbucks, Legg worked as an independent insurance broker, as well as in a claims capacity for Crawford & Co. Legg served on the board of the Washington state chapter of the Risk & Insurance Management Society (RIMS) for seven years, serving as president of the chapter during the 2005-2006 year. He has been an active participant within National RIMS and has served as a speaker to other insurance industry groups, such as the CPCU Society, the Professional Liability Underwriting Society (PLUS) and the Marine Insurance Association of Seattle. He has a degree in political economy of industrial societies from the University of California at Berkeley.

His story

Legg grew up in Kirkland, WA, on the east side of Lake Washington. Nicknamed “the little city that could,” Kirkland is the former headquarters for the Seattle Seahawks and Costco. Kirkland Signature is still Costco’s store brand.

“I grew up interested in a lot of different things, but I wouldn’t say with any degree of certainty that I knew what I wanted to do for a living,” Legg said. “I was intrigued with going somewhere else to study, so I attended UC Berkeley. I was interested in crisis management, and I just happened to be at Cal when the 6.9 Loma Prieta earthquake [1989] and devastating Oakland Hills firestorm [1991] hit. From those experiences, I thought I might pursue law school.

“As things turned out, my first job was back in Washington state working as a claims adjuster for the branch manager of Crawford & Co., hired by our mutual friend and industry colleague Katrina Zitnik, who was later director of workers’ comp for Costco, 2001-2013. We handled the huge Boeing workers’ comp self-insured account. There were around 100 employees in that office alone. My specialty was working with chemical-related claims, which was really fascinating, before I moved over to liability claims. By my second year there, I started to really understand what risk management was all about.”

From that experience, Legg went on to achieve his ARM designation. “It may sound corny, but I didn’t like the way it looked on my business card as Legg-ARM, so I went on to pursue my CPCU,” Legg said.

“With that formal insurance education, I went to work for a regional insurance brokerage in Kirkland where I learned a lot about insurance and other facets of risk management.” Legg said: “I came to this realization that I didn’t want to handle claims or broker insurance. I wanted to be on the buyer’s side of all this – tending to insurance and a whole lot of other things.”

In 1997, Legg was hired by his predecessor at Starbucks, which had gone public in 1992. At the time he joined Starbucks, the company had about 1,000 stores in the U.S. and Canada and just a few new locations in Japan. Legg describes his experience at that time in risk management as more of a buyer of insurance, but his job responsibilities quickly deepened and expanded with the global spread of Starbucks. He assumed the director of risk management position in 2006 when his boss and mentor retired and became active in the management of Starbucks’ Vermont captive.

The evolving company

Legg explained that the organizational structure is set up based on three key global regions: (1) the Americas; (2) EMEA, which is Europe, Middle East and Africa; and (3) CAP, which is China, Asia Pacific. “Our biggest push is in the CAP region, especially China, which presents a lot of opportunity,” he said. Although that region has a tea-drinking tradition, Legg pointed out that Starbucks owns the tea company Tazo and more recently bought Teavana and its 300-plus stores, providing a high-end, specialty tea product that has become popular at Starbucks locations. He said Starbucks’ specialty coffee and expresso beverages have also become very popular in tea-drinking cultures.

Starbucks has also expanded its offerings in premium pastries (it bought La Boulange), food and merchandise offerings, and it recently began providing beer and wine in selected areas of the country. “Evenings at Starbucks had been under-utilized,” Legg said, “so with the rollout of beer and wine we’re able to serve additional patrons.”

How Starbucks manages risk

Serving 66 countries with various laws and customs, Starbucks has a global quality assurance organization work with business units that are immersed in foreign locations. “Risk management and legal principles are practiced with our people that understand and are sensitive to local government, culture, customs and laws,” Legg said. “Starbucks wants to provide appropriate food and beverages, and we have a global safety security organization, as well, that makes sure that we are tending to the different types of risks these different and diverse cultures hold. Safety and security are fundamental components in the initial and on-going training of our partners.”

When asked about the challenge of identifying, evaluating and treating risk in far-flung global operations, Legg noted that there is a common thread regardless of demographics that relates to keeping stores well-managed, clean, secure and hazard-free. He added that a global design team works with individual markets to address issues that mitigate any unusual risk factors, which could include something as simple as adjusting counter and stool height. Store components are designed to provide for each locale’s needs while Starbucks maintains the quality and consistency that its customers expect.

As for dealing with its insurance and reinsurance markets, Legg noted that Starbucks collects a significant amount of data on all of its locations to enable its internal team and underwriters to have the geographic information they need for modeling. North American operations are mostly self-insured via large retentions and deductibles; Legg points out that first-dollar and low-deductible insurance policies are far more common, accessible and prevalent in other parts of the world. Compulsory insurance requirements differ across jurisdictions — in many parts of the world, for instance, workers’ compensation as we know it is not available, and injuries or illnesses among employees (which Starbucks calls “partners”) are addressed in different ways.

“Regardless of the transfer or retention of risk, Starbucks feels that no one could ever care as much about our partners and our brand as we do,” Legg said. He added, “We inspire and nurture our partners and customers… through providing good products, friendly service and by contributing to our communities. It’s an important part of our culture and what makes this brand so strong.”

All eligible full- and part-time Starbucks employees receive comprehensive health coverage and equity in their company, referred to as “bean stock.” In turn, employees typically volunteer more than one million hours each year in helping their local communities. Starbucks has also set up agronomy offices in different countries around the world to help origin farmers to better manage their crops and businesses. “It’s really important all up and down the chain from the front-line stores to the source of the company’s most precious commodity to have a seamless connection,” Legg said.

His suggestions

I asked Legg what coaching suggestions he has for people entering the field of risk management.

He said, “I think to be successful in risk management that it helps to have a good understanding of a number of different disciplines like accounting, finance, law, etc. Most importantly, you need to have the ability to think critically through things to make good decisions and to then have the ability to communicate well and to influence others. Knowledge without good communication skills won’t equip you for this career.

“I find myself guiding and teaching other people in the organization every day, helping them develop their own risk assessment philosophy in what they do day in and day out. We in risk management can’t be there all the time, so our job is to train others throughout the organization to make good, sound risk management decisions.

“Be open-minded and flexible. Risk management staff needs to identify and admit their mistakes, correct things and be able to change course as needed.”

Legg added with a laugh, “You think you know in detail how things are, then you find out you really don’t know how things are.”

4 Ways Superstores Can Teach Insurers

A smoke alarm isn’t the only kind of protection on sale at your local superstore these days. Need some life or health insurance with those printer cartridges? You’re in luck. Insurers like Metlife and Aetna now sell insurance policies through superstores. Walmart launched a pilot program with Metlife to sell life insurance policies at 200 Walmart stores, and Costco members can select Aetna health plans offered through Costco’s Personal Health Insurance program — Costco has offered its members discounts on auto, homeowner, renters, umbrella and specialty insurance through Ameriprise Insurance for several years.

Although not every effort has gotten off to a flying start, these are good examples of insurers experimenting with approaches to tap into large, underserved markets and new sales channels and to create brand awareness in a shopping environment where there’s a natural connection with the products they sell.

What I’m most curious about is the impact the superstore channel will have on how these insurers sell. What can insurers learn from two of the world’s most valuable retail brands about creating the kind of convenient, affordable one-stop-shopping experiences that Walmart and Costco offer and consumers so desperately want?

Plenty of things. Here are four:

1) FOCUS ON SELLING YOUR BRAND RATHER THAN YOUR PRODUCT

Walmart and Costco both offer lower-priced house brand products, but neither focuses its attention on selling its own product even though that would obviously benefit the bottom-line. The goal is to own the customer by meeting the brand promise of offering low prices and good value on any and all products that a customer wants to buy. Walmart doesn’t worry about selling a competitor’s product – even with a small profit margin, Walmart still generates revenue and profit, through multiple product sales, and keeps the customer coming back rather than sending him to shop with the competition. It’s good business sense to focus on what the customer wants to buy rather than what a retailer wants to sell.

Similarly, it’s good business sense for an insurer to consider selling products that are a good fit with the brand and that complement other product offerings – even if that means offering a competitor’s product.

Selling a competitor’s products can help insurers facilitate that convenient, one-stop-shopping experience that consumers want. It allows the insurer to keep the customer relationship while generating revenue from underwriting the risk, or from brokerage fees. And in cases where an insurer doesn’t have the experience, appetite or capacity to underwrite the product, it’s better to make fee income than the underwriting income.

An insurer’s No. 1 goal is to own the customer. The insurer that underwrites the product makes one sale; the insurer that owns the customer can sell to her for her entire lifetime. That can mean decades of selling renewals, cross-selling related products and generating referral business.

2) OFFER CUSTOMERS CHOICE

Mac or PC? Chocolate or vanilla? We’re a culture of consumers who covet choice. Even a limited selection is enough to provide customers with this valuable component of the shopping experience. While Costco is cautious about the number of brands it offers (limiting the number of brands allows Costco to get the kind of volume discounts it needs to offer the lowest prices), like Walmart it offers at least two choices of brands for any given product.

Providing a competitor’s products can help insurers, too. The objective is to give customers a selection ample enough that they can compare insurance products and choose the product that works best for them. As with Costco, this may mean offering the customer a choice between two brands that offer different price points and levels of coverage.

3) SELL CUSTOMERS EVERYTHING THEY WANT

There’s nothing haphazard about the layout of a Walmart or Costco. Superstores invest a great deal of time and money walking the walk of their customers. They think through how customers search and shop for products and how those products should be grouped for optimal cross-selling opportunities.

While insurers understand the profitable art of cross-selling, in theory, I’ve witnessed more than a few property and casualty insurers who’ve missed big opportunities to cross-sell products. What happens when that flower shop you just insured needs auto insurance on its three delivery vehicles and you don’t have it? If the insurer isn’t prepared to sell the customer what she wants, the customer will go to the competition to satisfy her multiple coverage requirements.

4) NEVER LET THE CUSTOMER LEAVE EMPTY-HANDED

The path from creating awareness to having a customer walk through the door ready to purchase is long and expensive. A superstore does everything in its power to make sure you have no excuse to walk out the door without buying something.

Factoring in advertising and promotional campaigns, the cost of bringing a paying customer through the door could be as high as $400 to $500 for some insurers. Every insurer’s goal should be to make effective use of a lead by finding some way to fulfill the customer’s product needs.

I’ve only scratched the surface. Now it’s your turn: What superstore selling practices do you think insurers should consider to win market share?

Who Owns the Customer Experience?

Who owns the customer? For insurance companies that work through intermediaries, it’s a controversial question that often stirs spirited debate between carriers and producers. But there’s another question that’s even more important: Who owns the customer experience?

Regardless of who insurers think owns the customer, the reality is that key parts of the policyholder experience are shaped by external parties—the agents, brokers and financial professionals who distribute insurers’ products.

This presents a difficult challenge for insurance companies, many of whom have kicked off customer-experience improvement initiatives in recent years. After all, how do you holistically manage the customer experience when you don’t control it in its entirety?

Some carriers skirt the issue by focusing on what they do control—customer touchpoints such as billing, correspondence, 800-line interactions, etc. That’s a reasonable approach to start with, but it has its limits.

Consumers don’t always know where the lines are drawn between carrier and agent, where the handoffs occur between the two parties. Their experience, and overall brand impression, is shaped by a wide array of touchpoints spanning pre-sale to post-sale, field office to home office.

For this reason, it’s neither practical nor prudent for carriers to ignore those elements of the customer experience that are administered by their field producers.

But how can a carrier insert itself into aspects of the customer experience that are clearly overseen by the producer? How can the insurer propagate customer-experience best practices beyond the walls of its headquarters and into its field offices, where so many significant consumer interactions occur?

Whether the company works with captive agents or independent brokers, this can be a thorny issue. Many financial professionals consider themselves to be entrepreneurs, and they have strongly held opinions about how to run their businesses.

Overcoming that sentiment requires some diplomacy. If producers sense that the carrier is encroaching on their territory, dictating the “right” way to do business, then friction will ensue, and the insurer’s customer-experience improvements will be relegated to the home office—a poor outcome for carrier, distributor and their shared customers.

So, if you’re an insurer looking to engage your field force in a constructive effort to improve the customer experience, consider these five tips:

1. Acknowledge shared ownership

Disarm territorial sensitivities by readily acknowledging that you don’t own the whole customer experience. Neither the carrier nor the distributor can claim such ownership, because each plays an instrumental role in shaping policyholder impressions.

Such an admission by carrier executives sends an important signal to the field, opening the door to a more collaborative approach for shaping the customer experience, from pre-sale to post-sale.

2. Make the case for action

Demonstrate to field partners, in a vivid and compelling way, why focusing on an improved customer experience is smart business.

The field may acknowledge that happy, loyal customers are good for business —but do they truly grasp how powerfully the customer experience can influence the top and bottom lines? Particularly in the insurance industry, given the economics of up-front commissions and long product tails, small improvements in retention can have a surprisingly significant impact on profitability. Even just from a sales standpoint, an increase in qualified referrals from positive word-of-mouth can be a game changer for any insurance agent/broker.

Perhaps one of the most convincing illustrations of how a great customer experience drives business results is an analysis of stock market performance for customer-experience “leaders” and “laggards”: For the past six years, customer-experience leaders generated a total return that was three times higher on average than the S&P 500.

This is the kind of head-turning data that insurers should put in front of field producers who are skeptical about investing time, energy or money into improving the customer experience.

Whether you’re a public or a private company, the message here is clear: A great customer experience pays off, paving the way for higher revenues, lower operating expenses and better overall financial performance.

3. Educate and equip

Given their entrepreneurial disposition, most agents and brokers won’t take kindly to having the mechanics of their organization’s customer experience dictated by some far-removed insurance company.

Instead of prescribing solutions, carriers would be better served providing tools and education to their field offices. In this way, the insurer can help equip its producers with the knowledge they need to effectively diagnose, and then differentiate, their organization’s customer experience.

That’s a much better solution over the long term, as it helps the field office embed customer-experience management best practices into its operations, as opposed to just tweaking a few isolated customer touchpoints.

Note that this is about more than just traditional “customer service” training. It’s about giving the field office a strategic understanding of the operating principles that customer experience legends rely on to create raving fans.

What great companies like Amazon, Apple, Disney and Costco have in common is an ideology around the design and delivery of their customer experience (see the sidebar that follows). Help your field understand and embrace a similar ideology, and you’ll influence their business practices for years to come.
4. Open the feedback spigot

One example of an ideological component that customer-experience legends share is a commitment to soliciting and acting on customer feedback.

Oftentimes, there is an arrogance in organizations— a belief among executives that they know what delights and what frustrates their customers, what will strengthen their brand experience and what will weaken it.

But as J.C. Penney learned during its recent meltdown, businesspeople can have a myopic view when it comes to understanding what truly makes customers happy.

Help your field offices avoid that pitfall by supplementing internal views with external ones. Carriers can use their purchasing power to bring robust “voice of the customer” survey programs to their affiliated agents and brokers. At the very least, they can offer field offices tutorials about feedback instruments.

Armed with these feedback instruments, your field offices can cultivate customer insights that will help them first shape, and then continually recalibrate, their experience improvement efforts.

5. Co-create the experience

For some parts of the insurance customer experience, field and home office interactions are so intertwined that it makes sense to tackle them with a united front (application and underwriting being a classic example).

This is perhaps the highest step on the customer-experience management maturity curve, where manufacturer and distributor work together to shape an experience that’s impressive and seamless.

Assuming all parties have been educated in the same customer-experience engineering principles, it can be valuable to bring field producers and home office representatives together to dissect, diagnose and redesign a particular piece of the policyholder journey.

By incorporating field and home office perspectives up front, a joint experience design effort is likely to yield a better outcome for all involved.

In today’s social media-connected, information-rich marketplace, customers are more empowered than ever. Nobody truly “owns” them.

But ownership of the customer experience is a different matter altogether. Great companies do take ownership of that, by very deliberately managing the many touchpoints that shape customer perceptions. Great companies even seek to influence parts of the experience that, on first blush, might seem out of their scope. (Consider how Amazon famously obsesses over the experience of physically opening a package once you receive it from their shipping partners.)

For insurance companies that don’t sell directly to consumers, the path to a differentiated customer experience must cross through their field offices—hence the importance of involving and influencing that key constituency. By deftly engaging distributors in the customer-experience improvement effort, insurers can make progress on two important fronts—creating a more positive impression not just on their policyholders, but also on their producers.

The 'Secret Sauce' of Customer-Experience Legends

Companies that do customer experience well tend to use a specific set of operating principles to help shape their customer interactions, from sales to service. The principles that elicit customer delight are remarkably consistent across industries and even demographics.

Below are three examples of such principles, which fans of Amazon, Disney and Ritz-Carlton are sure to recognize:

1. Make it effortless

Be it at point of sale or point of service, the less effort customers must invest to accomplish something with your company, the more likely they are to be loyal to your firm. Look for opportunities to minimize the amount of physical and mental effort that people must expend to, among other things, understand your value proposition, navigate your product portfolio, interpret your customer communications and secure post-sale service. (Case in point: Amazon’s patented One-Click purchase button, which makes it absolutely effortless to buy from them.)

2. Capitalize on cognitive science

Customer experience is about perception, and there are proven ways to leverage principles of cognitive science (i.e., how the mind works) to improve people’s perceptions about their interactions with your business. One example of this is giving customers the “perception of control,” because it’s human nature that we feel better when we’re in control of things and ambiguity is removed from our lives. Something as simple as clearly setting expectations for customers can make all the difference—e.g., how long will I be standing in this line, how many steps are in this purchase process, when will I next hear from you? (Case in point: DisneyWorld’s FastPass, which lets park guests avoid standing in line for popular attractions, making them feel like they’re more in control of their vacation.)

3. Be an advocate

It’s rare that people see companies paying more than lip service to the concept of putting customers first. For this reason, when people come across a company that truly advocates for its customers in a very tangible way, it cultivates stronger engagement and loyalty. One decidedly low-tech but highly effective way to accomplish this is by fostering a workplace culture of exceptional ownership. When your front line—the people actually delivering the customer experience—take personal accountability for owning every request that comes to them, it projects a refreshing sense of advocacy that will distinguish your firm from the “not my job… pass the buck” mentality that customers typically encounter. (Case in point: Ritz-Carlton, whose staff, when asked for directions within the hotel, will refrain from pointing guests in the right direction—instead, they personally escort them, to ensure the guest gets exactly where they need to be.)

This article first appeared in LOMA Resource.

Can Amazon Dominate in Insurance, Too?

In January 2013, LIMRA reported that 90% of industry executives it had surveyed believe that insurance companies will continue to form strategic alliances with “non-traditional organizations” to expand distribution. The example cited was MetLife’s trial alliance with 200 Wal-Mart stores. Then Accenture’s “Customer-Driven Innovation Survey” found that more than two-thirds of customers would consider purchasing home, auto and life insurance from businesses other than insurers—23% were open to purchasing from online service providers like Amazon or Google (which acquired auto insurance aggregator BeatThatQuote.com way back in 2011 in the UK).Amazon has proven leadership as an e-commerce distributor, while Google is seen primarily as an information organization, so I would like to elaborate exclusively on the compelling reasons for insurers and Amazon to create a distribution model to match ever-evolving customer demands.

Customer demands

Every information source and every analyst report on insurance in the recent past points to changes in customer’s preferences. Generation X, Generation Y and Millennials prefer doing business with companies that provide:

  • Convenience of on-demand buying and self-service, predominantly through digital channels such as web and mobile.
  • Personalization of product and service delivery, including helping the customer choose the right product.
  • Building trust through transparency in pricing, simplified products and clear articulation of benefits.

So, insurers must innovate in personalizing products, providing transparency in the value of products and services and demonstrating excellence in on-demand distribution. Innovation must also touch “moments of truth” such as claims and policy changes. It is also critical that the distribution lifecycle should be an iterative process to consistently review the value of benefits and help customers fine tune the products and services they purchase.

Insurers are lagging

Insurers have been consistently lagging in product innovation and trying to catch up through distribution. In P&C, all the personal product lines are commoditized. In life insurance, term-based products are commoditized. It is true some product personalization has been in the market for some time, such as pay-as-you-driving with telematics in auto insurance (led by Progressive, which saw a boost in profitability). Yet personalization has not reached its potential because of multiple inhibiting factors both internal (lack of aggregated information on risk, etc.) and external (privacy concern, etc.). The lack of product innovation shifts the responsibility of differentiation to distribution.

Manufacturing and retail have been pioneers in showing how boring commodity products can be differentiated through aspects of distribution such as packaging and channel selection.  A recent example is Coca Cola, which has been managing differentiation based on targeted customer segment and channel (Wal-Mart vs. Walgreens vs. Costco, etc.) and has moved one step closer to the customer by signing a 10-year agreement with Green Mountain Coffee Roasters to bring vending machines into kitchens.

In the past, insurance has learned from retail about channels. GEICO, which was known for selling online, has set up brick-and-mortar agency centers by responding to the fact that customers want to shop online but buy from agents. Allstate, where agents lead distribution, not only built online sales support but went one step further, acquiring Esurance to become a multi-channel insurer.

Now, with retail defining and moving toward omni-channel selling, through what is known as “device-independent e-commerce,” it is time for insurers to piggyback on Amazon, which is on the leading-edge of the emerging distribution model.

Amazon ready to sell insurance

Currently, Amazon merely sells books on insurance, has a limited selection of extended warranties for electronics and provides sponsored links for insurers. But to start selling insurance much more seriously would be easy for Amazon. It could expand its extended warranties and offer valuable personal property (VPP) insurance, as it sells the products that are insurable under VPP. It would also be logical for Amazon to extend and be an aggregator for auto, renters, homeowners and life insurance.

The critical question is: “Will customers want to buy from Amazon when there are other aggregators available?” For customers, having reusable information reduces effort, so VPP insurance would be a natural for Amazon. It gets more complex (and interesting) when analyzing the success factors involved in selling complex products such as auto, renters, homeowners and life insurance.

Few insurers can share data and process across products. Still fewer can share across channels. Aggregators are set up as silos. But Amazon’s shopping cart can provide ease of buying, plus reusability of data across channels (web and mobile) and products. The shopping cart actually can resolve the commodity dilemma of insurers through bundling. It can take the customers’ experience to the next level.

Amazon’s analytics-driven capabilities, such as detailed product features and comparisons (price to value of benefits), product reviews, questions and answers, “customers who bought this also bought,” “customers who viewed this also viewed” and offers for the week can be customized for insurance to offer suitable product advice to customers. Insurers do not have such an integrated view because of internal challenges in the effective use of data.

Amazon’s comparisons on features and pricing could improve transparency for customers. The reviews, Q&A and “similar customers” features would provide advice. “Weekly offers” would help customers continually review and tweak their insurance coverage. Hence, Amazon could become the channel of choice for all consumer insurance needs.

Sacred relationship, and not the competition, is the way to go

While Amazon could become consumers’ “trusted advisor,” Amazon also provides a jump start to insurance companies that want to build on the ready availability of its technology infrastructure, reducing their investment and time to market. Amazon might cooperate with innovative insurers to be an aggregator because that would provide immediate and direct profits from its platform.

Amazon would also generate synergies among its various product lines—for instance, when someone starts buying baby products, Amazon might offer life insurance. For existing homeowners policyholders, it could offer products, such as power generators, to help them get prepared and avoid loss during natural disasters such as hurricanes and ice storms. The customer’s engagement with Amazon would increase, leading to greater share of wallet through cross-selling and up-selling opportunities.

So, an insurer that provides coverage through Amazon would be creating a win-win-win—for Amazon, for customers and, of course, for itself.