Tag Archives: distribution channels

P&C Distribution: Blending Models

A great deal of activity is underway by insurers investigating or implementing new distribution channels. For every line of business across P&C, there are compelling reasons to expand distribution beyond the tried and true channels. This is not to say that agent/broker channels or the direct distribution models are less important or going away. It is more about reaching new segments, addressing new customer expectations and meeting customers at their point of need.

There are two important dimensions to the strategies: 1) determining the right mix of channels for each company, and 2) managing those channels, including any related channel conflict. SMA addresses these two dimensions in a new research report, P&C Distribution R(evolution): Blending Old and New Models

Determining the Right Mix of Channels

Depending on how you count, there are at least eight different models for distribution in P&C, and variations within each of those. There are the models most in use today – captive agents, independent agents and brokers, MGAs and, in some segments, the direct model (call center/web). Then there are those that have been around for a while but are experiencing a surge in interest, such as selling through affinity groups or bundling insurance with the product to be insured. Even worksite marketing, which has been primarily the province of voluntary benefits and life/health, is an option for P&C distribution.

Now, introduce some of the digital age models like the creation of a digital brand or selling through emerging ecosystems like smart homes or connected vehicles. And, of course, there are many insurtech distribution players now in the mix, either in the form of digital agents or MGAs, new digital brands or new affinity or ecosystem partnerships. As with many strategy options in the digital age, there is no shortage of choices. More than ever, the key is to take an outside-in view to identify more discrete customer segments, the risks unique to those segments, and the best channel to reach those customers with products that serve their needs.

See also: Best AI Tech for P&C Personal Lines

Managing Channels, Including Channel Conflict

Some insurers will stick with one primary channel and work to strengthen the relationships and the technology capabilities supporting that channel. However, many are expanding by offering new channel options. When this occurs, there is often an issue of channel conflict, especially when an agent channel has been the primary channel. This is nothing new – insurers have been dealing with this since the early days of the internet, when it became apparent that new distribution models would emerge. However, our findings indicate that the agent/broker community, in general, now accepts the notion of multi-channel distribution. It does not necessarily mean that they are happy about it, but most understand it is the reality of the P&C world today. The key for insurers is finding the right approach to differentiation.

The Future of Distribution

We expect to see a more varied mix of distribution channels for P&C. There will likely be all manner of channels. As connected world ecosystems continue to evolve around property, vehicles, farms and other areas, the paths to the customer will expand. New technologies are likely to increase exposures in some areas (such as cyber) and introduce unexpected risks that need insurance coverage. And, yes, in the midst of all this change, there will still be agents and brokers playing a key role in insurance distribution in the future.

Wave of Change About to Hit Life Insurers

A tsunami of change is poised to disrupt the life and annuity market in terms of regulation, products, distribution channels, business strategies and customer expectations. The new regulatory ruling from the Department of Labor (DoL) will initially disrupt annuity product sales related to IRA rollovers but will likely have significant impact in the medium to long term with all the products that U.S. life insurance companies provide.

The new ruling places a fiduciary standard on all types of financial services companies and advisers that provide investment advice or sell insurance or other products that affect qualified retirement accounts. Unlike the previous suitability standard that applied to most annuity and other investment product sales, the new fiduciary standard will require that financial advisers be completely transparent about their conflicts of interest and compensation and will make it very difficult to justify commission payments by product companies. To help guarantee objectivity, the preferred fee structure for retirement account-oriented advice and product sales will become fees directly from the consumer. While the fiduciary standard will apply initially to qualified retirement accounts, the recent experience in other countries like the UK and Australia makes it clear that consumers will come to expect a similar level of transparency and objectivity for other types of financial advice and financial products like life insurance.

See Also: 8 Start-ups Aiming to Revive Life Insurance

Life insurance companies that write a large volume of high-commission, retirement-oriented products like variable and indexed annuities will experience the most significant, immediate and potentially negative impact. Traditional life insurance and other lines of business will experience the impact of the fiduciary ruling more gradually, giving life insurance companies early warning and much-needed time to evolve their products, technologies and distribution strategies.

Insurers should assume that group-led individual product sales sold under something resembling the fiduciary standard will ultimately become the norm for the whole life insurance portfolio.

Adding further momentum to this wave of change are Millennials, now the largest living generation. As also the most educated living generation, they expect objective advice and fees for products that represent fair value. While often very self-directed, Millennials want advice from experts in complex, important areas like employee benefits. Millennials want to receive employee benefits advice from their current employers but then often buy individual products that can follow them to future jobs at new employers. This represents another wave of change because of the dynamic, “gig” economy.

Right behind, Gen Z, is a generation ‘born digital,’ with technology incorporated into all aspects of their lives. They live and breathe innovation, as noted in our Future Trends: A Seismic Shift Underway report. What does this mean to their employers and their desire to build employee loyalty?

This new customer expectation is reinforced in a recent MetLife employee benefits study where nearly two-thirds (62%) of employees say they’re looking to their employer for more help in achieving financial security through employee benefits as compared with 49% in 2011.  Furthermore, the study noted that Millennials were twice as likely compared with baby boomers, 44% versus 20%, to say that their employers “ought to help them solve their financial concerns.”

So what does this mean for life insurance companies? It means a new world of transparency, objectivity, fee-based adviser compensation, lower-fee products and employee job hopping will together create a wave of change to long-held business assumptions, operations and more. With the pace of change gathering strength and with limited resources, life insurance companies should seek partnerships that will help them ride this wave. This could involve partnering with technology companies to provide a single modern platform to support both individual and group needs that match the emerging customer needs. It may mean working within an ecosystem of innovative, new investment and insurance distribution platforms that were built with business and operating models that fit properly into the context of this new world.

Rather than acquiring these platforms and stifling innovation, the distribution partnerships provide valuable insights to understand how the platforms connect with Millennials and Gen Z and how to provide value to them. The new “robo adviser” technology-enabled platforms act as fiduciaries and have shown strong, early success with accumulating investment assets from Millennials and other types of consumers by providing automated, institutional-style asset management. Some of the robo platforms like Betterment express an interest in implementing retirement income-oriented advice and product delivery capabilities but will need help understanding the nuances and complexities of retirement income. Interestingly, life insurance companies are in a stronger position than other types of financial services companies to explain the benefits of having a “retirement income floor” and then providing the deferred or immediate income products that can actually provide that floor.

With insurance protection products, the new employee benefits distribution platforms focus almost exclusively on health insurance benefits, but will inevitably diversify into non-health employee benefits products. While technology will help with making protection products more consumer-friendly, combining technology with expert advice from people will provide the formula that Millennials will want.

To provide the multi-channel employee benefits advice that Millennials prefer, life insurance companies should consider investing in dedicated agents/advisers who can act as fiduciary equivalents for employee benefits products and provide objective advice based on the employee’s particular needs. These dedicated agents will find an attractive opportunity in helping employers with fewer than 100 employees level the playing field with larger employers — providing a compelling service to Millennials and other employees that will help to retain and motivate them.

Furthermore, life insurance companies should also seek to partner, tightly integrate with and learn from a few of the early self-service enrollment platforms for employee benefits like Gravie and Connecture, even though they are currently focused on health insurance products. Only by partnering with these types of companies and by understanding how they generate revenue by providing objective advice to Millennials will life insurance companies be able to succeed. For an industry that has relied for many decades on selling commission-based products through traditional, third party intermediaries, this will require a completely new way of thinking and a new business model that is currently foreign to most U.S. life insurance companies.

Finally, to put this all together as a “platform” solution, insurers must look to new technology software that will provide some key elements, including:

  • a core platform that supports both individual and group, to enable portability of insurance,
  • a digital platform that will enable multi-channel environments and provide a compelling customer experience, and,
  • a platform that will easily integrate innovative solutions and partners to differentiate the organization within its market.

It all comes down to adaptability, innovation and speed in life insurers’ ability to ride the wave. These corporate mandates are explained in greater detail in Majesco’s latest research paper, Riding the Wave of Change in Group and Employee Benefits.  

Why not treat partners and new players like expert surfers that can help to ride the new  wave?


Outsiders Retreat From Insurance

Cargill, Monsanto, Wells Fargo and John Deere are officially out of the crop insurance business, according to a recent article from Bloomberg. Large companies like these expanded into different aspects of the agriculture industry over the past few years, and their debut in the insurance industry made quite an impact. With their newly acquired insurance operations, they were the market players to watch – and now we’re watching them leave the industry.

Behind this exodus is the matter of profit. Large companies, especially those that are publicly traded like Monsanto and John Deere, have a different perspective on risk and profit than the typical insurer.

Let’s take crop insurance profit and loss over the past couple years, which is driven by fluctuations in crop prices. As Bloomberg explained, “Bumper harvests have sent corn, the biggest U.S. crop, to less than half its 2012 peak, ratcheting down the premiums farmers pay to insure against loss. Other crops have also seen steep price declines.” At the same time, the broader insurance industry has been seeing lackluster results. The most recent numbers from the Congressional Research Service indicate an underwriting loss of $1.3 billion in 2012 and profit of $657 million in 2013. For insurers, although these are not welcome results, the reality is that there will be challenging years – and insurers are accustomed to anticipating them. They are in for the long haul. But large, diversified commercial companies such as Cargill, John Deere and Monsanto have a much harder time adjusting to these financial results.

So, were these big external players a collective blip on the map, or a real disruption? A pattern visible across many industries offers a possible answer. Large companies diversify around their current offerings, and, if the results are disappointing, they realize the expanded offerings are not core to their business. Google has been extremely successful in most of its diversification, but Google+, its social network offering, never became the powerhouse the compay had hoped would challenge Facebook. If these large companies are unsuccessful, they often leave the new industry.

This is not to downplay the role that new entrants have in the insurance ecosystem. They push our thinking and ways of doing business in directions that might otherwise have taken years for the industry to adopt. New players like Haven Life and Google are not attempting to be the same old insurer, only better. Their goal is to disrupt the business of insurance and to create something in a niche that the industry had not perceived. The disruption they cause can take many forms, from new solutions to new distribution channels. They can go after these markets without owning the entire process – and, in doing so, they create real changes in how the insurance industry has to operate.

Driverless cars will present similar challenges. Volvo and Ford have both mentioned the possibility of covering product liability insurance. How will this affect the insurance industry? Will automakers really cover the liability, or will they front it? Autonomous vehicles will change the insurance landscape by opening doors for these new thinkers. But will the insurance industry need to step in to present new insurance products that provide the necessary coverage? What role will insurers play in the new auto world?

Disrupters like Monsanto, Cargill and John Deere were not in the market for a long time, but they do have an impact. They invested in changing the claims process, and they applied data, analytics and automation in areas that were previously very manual – which causes us to rethink other processes. We can hope that their new ways of doing business opened some eyes in the industry. They did not change the game so much as establish that the game needs to be changed.

How to Bring Distribution Into Sync

We’ve been taking a look at how a confluence of forces are having an impact on insurance distribution and how insurance companies need to respond by following a 2D strategy.

In my first two blogs, we detailed the four fundamental drivers of the changes. In my first blog post, “Bringing Insurance Distribution Back Into Sync Part 1: What Happened to Insurance Distribution?”  we talked about how new expectations are being set by other industries and technology.  Last time, in “Unending Waves of Change in Digital Expectations and Distribution Issues ,” I discussed the other three of the four fundamental drivers: that new products are needed to meet new needs and risks distributed in new channels; that channel options are expanding; and that the lines are blurring between insurance and other industries.

Today, we’ll dive deeper into the components of the 2D strategy, which calls for:

  • Optimizing the front-end with a digital platform that orchestrates customer engagement across multiple channels
  • Creating an optimized back-end that effectively manages the growing array and complexity of multiple distribution channels beyond the traditional agent channel.

Optimize the Front End

The digital revolution is being powered by an array of technologies and the changing expectations of customers across all demographic groups. As customers gain market power, they are increasingly comfortable with technology, have a stronger voice and are willing to use it to make their expectations and needs known. In this new world, all technology should be viewed as customer-touching, because it directly or indirectly influences the customer experience.

As a result, many insurers are rapidly investing in digital initiatives and technologies, but too often they do so in a tactical, fragmented and reactionary approach. In today’s world, insurers must look to orchestrate the customer experience through any channel and technology that consumers choose to use. Whether they choose agents, websites, mobile apps, portals, compare sites, aggregators or retail firms, consumers want a consistent and compelling experience that gives them confidence in the insurer.

This demands a platform that enables personalization of portal and mobile solutions based on the unique customer journeys and personas defined by each insurer. To fulfill their unique and multi-channel distribution and customer experience needs, the platform must be integrated with other core insurance solutions as well as an extensive partner ecosystem that integrates content, channels and technology.

Optimize the Back End

In a fast-paced competitive market, distribution channels and effective management of those channels is increasingly critical. Designing, developing, maintaining and managing productive channel relationships is crucial to achieve sustainable competitive advantage.

Effective distribution management should cover a broad array of capabilities to drive operational effectiveness (including distribution registration and licensing); compensation plan design and configuration; compensation payments and reconciliation; and performance management reporting and analytics. Channel management and productivity are critical in contributing to overall growth and profitability. The ability to improve channel productivity, reduce sales cycles and increase cross-sell and up-sell opportunities is increasingly important for long-term success.

To stay competitive and keep distribution channels engaged, insurers are increasingly putting a priority on servicing these channels. From providing access to their production and compensation reports to providing new leads and licensing compliance and education, these all offer opportunities for channel service excellence to retain and grow the channels. Enter the growing need for effective distribution management and systems that improve carriers’ capabilities to manage multiple channels and multiple factors.


An insurer can have the best insurance products, pricing and advertising to build its market presence, but if it doesn’t have a distribution ecosystem underpinned by a connected, digital front-end and a robust distribution management system on the back-end to optimize and maximize these channels, its customer growth and retention potential will remain limited. If it is difficult to effectively manage or, better yet, optimize compliance, compensation and performance of distribution channels, insurers could end up losing business to competitors that can.

Customers expect and demand multiple, coordinated channel options to learn about, shop for, buy and use products and services, and insurance is no exception. Just as long-established retailers will remodel every few years, the place you meet your customers can’t remain untouched without your organization and its products losing their sense of value. Building an integrated digital distribution framework within a foundation of modern distribution management capabilities will provide new efficiencies, new opportunities and additional fuel for growth.