Tag Archives: distribution

Power of Partner Ecosystems

To the max. As much as possible. To the utmost extreme.

All of these define the term “nth degree.” As a math major, I know the term has roots in mathematics, where “nth degree” equations and roots have been around for decades. How does this apply to insurance?

The digital era of insurance is accelerating and shifting the business landscape. The digital era has put new technologies, data and capabilities in the hands of business leaders – offering them the opportunity to transform their business and customer experiences.

But an even more powerful transformation is in insurers’ market reach with the power of multi- and digi-channel partner ecosystems!

Buying vs. Selling

Generally, today’s insurance process is difficult, lacks transparency and is complex and often time-consuming. In contrast, many insurtechs and existing insurer innovations are refocusing to a “buying” over “selling” approach — through a multi-channel strategy that meets customers where and when they want to buy.

If distribution channels are easy to use with products that are easy to understand, then insurance has the opportunity to grow through friction-free, multi-channel distribution.

With the increasing competitive challenges to attract and retain customers, insurers must develop and use a broader distribution ecosystem that engages customers when and how they want … putting them first. A distribution ecosystem can rapidly reach more markets, potential customers and current customers with more purchase and service options by tapping into a growing array of channels beyond the traditional agent/broker channel. Distribution ecosystems provide new access avenues, capabilities and services that create the nth-degree impact – both for customers and insurers.

Simply put, this range of channels includes direct-to-customer, agent/broker, other insurers (for products you want to offer your customers), marketplace exchange or platform and embedded — provided across a range of soft, hard or invisible embedded partnerships as depicted below.

Together, this spectrum of channels represents the new multi- and digi-channel ecosystem for the digital era of insurance.

Multi- and Digi-Channel Ecosystems — Foundation of the Nth Degree

To compete for the next generation of buyers – millennials and Gen Z — let alone retain today’s Gen X and Boomers, insurers must be a part of and offer a range of distribution channels with which they interact, transact and integrate, to offer customers innovative, optimized solutions.

In our 2020 customer research on auto and life insurance, we found younger generations are open to buying insurance from a wide array of channel options, including:

  • For life insurance, they are 33% more open to new channels than older generations.
  • The preference gap between new and traditional channels is large for older generations – nearly 50% – as compared with only 21% for Gen Z and millennials. So, customers are much more open to different, new channels – creating an opportunity for growth.
  • The younger generation is twice as likely to buy auto insurance from a car shopping website or a vehicle manufacturer website or have it included in the purchase or lease of a vehicle.
  • Millennials and Gen Z are open to buying insurance from Big Tech like Amazon, Apple and Google.

Insurers looking to compete are ill-equipped to do it alone. They must create an ecosystem of connected channels, using a range of digital capabilities to connect with customers when and how they want.

Let’s face it…. we all interact with a wide array of different entities, businesses and individuals on a regular basis. Many of these entities have earned our loyalty and trust, providing a platform for future engagement. Many of these are now becoming channels for insurance — GM, SoFi, Ford, Petco, Airbnb, Uber, Intuit and more. At the same time, we are seeing partnerships form within the insurance industry — insurers selling each other’s products, leveraging new marketplaces to expand reach and strengthening the traditional agent/broker channel with new digital capabilities.

Together, the partnerships represent a powerful distribution ecosystem that places insurance directly in the path of a customer’s life journey events, where insurance is relevant and needed. Ecosystems provide a greater impact on sales because they are an “outside” customer approach instead of an “inside” product/process approach. This is the shift from selling to buying that is so crucial to today’s insurer growth. It’s an approach that naturally reduces infrastructure, operational and capital expenditures at the same time that it brings in more business with less effort.

However, in our joint research with PIMA last year, we found that of the wide array of 34 channel options, only 18% (or 6 of the 34) are being planned — reflecting a very narrow view of channels that significantly limit reach and revenue opportunities and create a wide-open field for those who dare to be creative in establishing a multi- and digi-channel partner ecosystem.

Next-Gen-Multi- and Digi-Channel-Gen Leaders

Who is taking advantage of this wide-open field, becoming next-gen multi- and digi-channel leaders? Some are starting in other financial services areas first (which provides insights to broader opportunities) while others are directly entering insurance. But they are all vying for the next-generation customer!

Outdoorsy + Roamly — Online recreational vehicle rental and outdoor travel business Outdoorsy said it is partnering with insurtech Roamly to provide insurance for RVs, travel trailers or campervans. With Roamly, commercial and personal policy owners can safely rent their RV, trailer or camper on marketplaces like Outdoorsy without losing coverage or worrying about loopholes.

SoFi, Ladder Life, Lemonade and Gabi — One of the best examples of a company looking at the customer across life, health, wealth and wellness is SoFi, a fintech organization – under SoFi Protect. SoFi started out as a student loan consolidator and provider and has rapidly expanded to owning the entire customer financial services relationship – life, wealth, health and wellness. The original focus on student loans has been capturing the next generation of customers – millennials, Gen Z and eventually Gen Y. SoFi now has over one million members and 7.5 million contacts, where members may represent family units. The company created “vaults” for customers to use for saving and spending, for categories like insurance, taxes, travel, house, emergency fund, etc. and offer insurance through an ecosystem of partners, including Ladder Life for life insurance, Lemonade for renters or homeowners insurance and Gabi for auto insurance.

State Farm and Ford — State Farm announced a partnership with Ford for usage-based insurance (UBI) using the auto telematics and connected data from eligible, connected Ford vehicles. Ford vehicle owners will be able to opt in to State Farm’s Drive Safe & Save program, which aligns premium to miles driven while also rewarding safe and good driving behavior with potential discounts.

John Hancock and Amazon — John Hancock announced the integration of its Vitality Program with Amazon Halo, allowing Hancock’s Vitality customers to use the Amazon Halo Band to earn Vitality points based on their daily efforts for a healthier lifestyle that should mean a longer life. The Amazon Halo Band, a wearable health and wellness device, will measure and analyze users’ activity, heart rate, sleep and tone of voice to provide individual health insights and help encourage healthier habits – thereby earning Vitality points.

Google, Allianz and Munich Re — Google is partnering with these two global insurers to cover cyber breaches and related risks for client businesses that use Google’s cloud services.

The Guarantors and Property Management Companies — The Guarantors is a fintech company providing innovative insurance products and financial solutions for residential and commercial real estate professionals as well as their residents and tenants. The goal is to be the most trusted “go-to” brand for insurance and financial solutions throughout the real estate industry.

Chubb — Launched Chubb Studio “digital insurance in a box.” Partners can access their products, services and claims digitally and integrate what they do into what the partner does – embedded insurance. Initial products offered include: health and well-being, home contents, gadgets, travel and small businesses.

And on the horizon are more companies whose first focus is financial services (such as banking) but that will be well-positioned to offer and provide insurance. The companies also have the motivation. With low interest rates and increased competition from digital leaders, banks need to grow their service portfolios. Consider their customer bases and the impact if they move into insurance.

Verizon — While fintechs globally have been vying for the next generation of banking customers by offering them custom accounts when they turn 18, Verizon has jumped into the game by offering mobile banking with a checking account for the younger generation. The new tool, called Family Money, has two options — monitorable checking for parents to observe and track what their children are paying for and a “savings vault” account with real-time alerts, rules, spending limits and locks. Verizon uses Galileo for the application programming interface (API) and payment processing platform and are offering bank accounts and a prepaid Visa card through Metropolitan Commercial Bank.

Google — Similar to Verizon, the company is vying for the customer relationship. Google’s “Plex” accounts are a mobile-first checking and savings account directly integrated into the Google Pay app. The company is partnering with about 10 financial institutions, ranging from big national banks to regional banks and credit unions, and customers will be able to choose which one they want.

Walgreens — Walgreens is launching a bank account in partnership with MetaBank, inclusive of a debit card, as a way to complement its current services and enhance its loyalty program and customer personalization.

H&R Block — H&R Block, in partnership with MetaBank, is offering an Emerald Prepaid Mastercard account that will do more than accept tax refunds loaded onto it, including allowing customers to withdraw cash, pay bills and perform other money management tasks.

Each of these have been dabbling in insurance, and these efforts are further evidence of their customer strategies.

Distribution Partner Ecosystems — Go to the Nth Degree

Market leaders and competitive market position in the future will be how insurers create distribution partner ecosystems that leverage their strengths and embrace partners to fill gaps and expand market reach. It’s all about the multiples!

In our 2021 Strategic Priorities research, we found that insurers with new products are blowing away their traditional product counterparts in leveraging partnerships and ecosystems across many different areas of the distribution spectrum noted previously. Unfortunately, too many insurers seem stuck in their traditional channels rather than expanding channel choice and reach, meeting the customer where and when they want.

We see big bets being made in new business models, products and services from fintech, insurtech and incumbent insurers that are focused on capturing customers when and where they want through a broader market network of partners. But the challenge for those not embracing a distribution partner ecosystem is that they will have decreasing opportunities for partnerships the longer they wait, limiting their market reach and growth opportunities as a new generation of buyers increasingly turns to alternative channels.

The question is… are you ready and willing to take your distribution strategy to the max… to the nth degree? Your customers are waiting.

Mid/Large Commercial Distribution

Traditionally, success in the middle-market and large commercial segments relied on deep expertise regarding customer risks and deep relationships with a network of distributors with access to those markets. Those capabilities are still fundamental to success, but lately the carriers’ digital capabilities have become increasingly essential in these markets.

Distribution partners – whether retail agencies, brokers, wholesalers or MGAs – want to do business with carriers that reduce the friction, shorten the quote-to-bind time and provide a good appetite match for the business they want to submit. Naturally, distributors are also interested in product fit and commission structure, but business tends to gravitate to carriers that feature ease of doing business. And all of these things are taken into account as carriers’ channel strategies evolve in the mid/large commercial segment.

See also: Tomorrow’s Insurance Is Connected

A recent SMA Research report, “Channel Strategies and Plans for P&C Commercial Lines: A View of Small and Mid/Large Commercial Segments,” highlights the aggressive stance that many carriers are taking in expanding their distribution networks over the next few years. To gain a deeper understanding of the digital technology capabilities that will support the existing and expanding channel strategies, SMA recently surveyed carriers focused on the mid/large commercial market. The research assessed the current state of digital capabilities offered to distribution partners, barriers to implementation and adoption and plans for enhancing or delivering new digital capabilities in the future.

SMA’s research tracked 14 digital sales-oriented capabilities and 17 servicing capabilities, starting with a carrier’s satisfaction with the state of their tech offerings to their distribution partners. In terms of digital sales capabilities, the overarching theme is that anything that improves the ease of doing business and provides more self-service capabilities is a focus. On the servicing side, both agent and policyholder self-service portals top the list of digital projects. New or enhanced capabilities related to policy, billing and claims are also in the mix.

It is important to note that there are both business and technology roadblocks to success with distribution technology. For example, few will be surprised to learn that limited IT resources are the #1 barrier on the technology side. However, from a business viewpoint, understanding customer needs and creating the right value propositions can prove to be a challenge.

All the new channel strategies and digital project activities reinforce the notion that there is a real revolution going on in the distribution space. For most insurers, standing still will not be an option. Winning strategies will include strengthening capabilities and relationships with current partners and extending distribution networks into new spaces.

For more information on commercial lines distribution expansion strategies, see our recent research report, “Distribution Technologies for Mid/Large Commercial: Carrier Progress and Plans.” SMA is also introducing a new research series with perspectives from the distributor’s point of view. A regular series of research reports will be published based on surveys and interviews withs agencies, brokers, MGAs and others in the distribution channel, including insights from ReSource Pro’s large footprint of distribution clients.

Small Commercial: Digitizing Distribution

How far along are commercial lines carriers in delivering digital solutions to their agents and other distribution partners? Answering that question depends on whether you are a glass half-empty or glass half-full type of person. The pessimist might say: Despite huge investments in technology over the past few decades, there is still a great deal of manual processing; the time for the rate-quote-bind process is too long; and the goal of truly making it easy for the agent to do business with the carrier is still elusive. The optimist would cite enormous industry progress, as many companies have increased straight-through processing (STP) to a significant percentage of the business; digital self-service capabilities for both sale and service are widespread; and agent-carrier connectivity, in general, enables astounding volumes of electronic business flow.

SMA recently surveyed carriers focused on the small commercial market to assess the state of digital capabilities offered to distribution partners, the barriers to implementation and adoption and the plans for enhancing or delivering new digital capabilities. We discovered that rather. than taking a glass half empty or half full approach, the better analogy is a road trip, with the kid in the back seat regularly asking, “Are we there yet?” It turns out that the question is not easy to answer. Once you get by the lofty goals of STP and ease of doing business (EODB), there are a variety of specific functional capabilities that are important. By the way, STP and EODB are still the top two reasons that carriers invest in tech solutions for distribution, and they do provide a north star for plans in this space.

SMA’s research tracked 14 different digital sales-oriented capabilities and 17 servicing capabilities, starting with a carrier’s satisfaction with the state of the offerings to their distribution partners. Suffice it to say that, while some are satisfied with their offerings, many are not. For example, only about a third are satisfied with their quoting capabilities. Satisfaction levels on the servicing side are higher, but there are still many companies that are dissatisfied or do not offer the digital capability. In terms of plans and projects, there is lots of investment and activity in addressing the areas where companies believe they are weak. For example, data pre-fill is the top project area for sales capabilities as it is a critical starting point for achieving STP.

See also: Agencies Turn to Networks for Growth

There are both business and technology roadblocks to success in distribution technology. For example, few will be surprised to learn that limited IT resources are the #1 barrier on the technology side. In short, this is a very critical but complex area of the insurance business, and the industry as a whole is moving to enhance the digital capability provided to distribution partners. It is a journey, but, like that proverbial kid in the back seat, many executives will continue to ask, “Are we there yet?”

For more information on commercial lines distribution expansion strategies, see our recent research report, “Distribution Technologies for Small Commercial: Carrier Progress and Plans.” SMA is also introducing a research series with perspectives from the distributor viewpoint. A regular series of research reports will be published based on surveys and interviews of agencies, brokers, MGAs and others in the distribution channel, including insights from ReSource Pro’s large footprint of distribution clients. 

How AI Is Moving Distribution Forward

While artificial intelligence can improve almost all of the insurance value chain, most insurers are still not leveraging AI at its full capacity.

Adopting AI and implementing hyper-automated systems can help insurance distribution, in particular, become more efficient, accurate and secure — a benefit that both companies and the end consumer will see. From improving risk analysis and fraud detection to providing more sophisticated pricing and better customer insights for faster, more personalized customer advice and services, there are many ways in which AI helps move insurance distribution forward.

Improving operational efficiency

With today’s low interest rates, insurers can no longer depend on the financial earnings of their assets and need to find new margins in their operating models. They have more pressure to increase revenues while cutting overall operational costs. 

Deploying AI to everyday back-office processes can reduce the number of manual tasks insurers face, freeing them to spend more time on tasks that support their bottom line. Insurers are able to get more done in less time and often with improved accuracy.

Enhancing insurance distribution

According to McKinsey, 80% of value driven by advanced AI in insurance will come from marketing and sales alone (versus only 10% from better risk management and 3% from gains in operational efficiency). Today, insurers face several distribution challenges — moving from physical to remote and hybrid sales networks, learning how to strike the balance between technology and human sales, adjusting multi-channel and omnichannel sales, etc.

AI can enable a more fluid and personalized experience for customers from initial lead prioritization through needs analysis and advice, to automated underwriting. Additionally, integrated computer vision technology automates the underwriting process while detecting fraudulent documents, which drastically reduces the policy underwriting time for the policyholder and the operation costs for the carrier — a benefit for both parties.

See also: Stop Being Scared of Artificial Intelligence

Providing a better customer experience

By creating consumer-specific predictive models, AI helps policy providers enrich their recommendations to both potential and current policyholders, resulting in better synchronization between needs and offers, and superior service across the entire sales chain. 

For example, speech recognition combined with natural language understanding can interpret essential information from customer inquiries in real time. The AI can then provide contextualized and transparent recommendations for both advisers and agents. The result? Advisers and agents can act faster and more accurately, increasing the number of cross-sell opportunities and the win ratio of quotes.

A look ahead

AI will play into several trends that the industry will start to see unfold in the next five years.

Insurance products and service offerings will become more and more complex

As consumers’ needs continue to develop, so will the products and services required to address them. Five years from now, insurers will offer more complex services and, in turn, will need to be able to better explain these offerings to policyholders. This is where AI technology will be vital. AI will help guide advisers, agents or self-care portals in recommending the most relevant products for each individual. We will also see more embedded insurance offerings, with AI helping to pick and pair the consumer’s best options.

Insurance companies will feel the threat of Big Tech

In five years, the insurance business will be even more intermediated through digital platforms and marketplaces. The list of examples is already growing — Airbnb offers renter insurance, Amazon is offering delivery guarantees, Booking.com proposes travelers’ insurance. 

As insurers continue to compete with Big Tech, they need to match the competition’s standards by offering immediate, simple and adaptive policies with AI. Without full process automation on key distribution activities, traditional insurers will struggle to exist in this tech-focused ecosystem and will be challenged by full-digital players.

The industries where the competition is stronger and the insurers are more primed for innovation include personal lines of insurance such as auto, property and casualty and health insurance. In the future, we will need to see these industries take off with artificial intelligence to stay in the game.

See also: Pressure to Innovate Shifts Priorities

At Zelros, we believe that AI-enabled solutions will empower insurance players to keep up with the rising expectations of their customers. AI will give them the acceleration needed to have the real-time experience that everyone now expects when engaging with a brand.

Does Pandemic Signal the End of Agents?

With each new wave of technology over the past few decades, there have been many predictions that this is the end of agent distribution. You know the drill: “Technology can be so much more efficient and remove all that expense related to those human distributors.” I can remember back to the dawn of the internet, when there was all the discussion about disintermediation. I heard that term in all kinds of insurers’ strategy discussions. I never believed agents and brokers were going to be displaced then, and they certainly have not been displaced. In fact, as digital technologies have advanced in the intervening decades, agents and brokers are still dominant. 

Now, we are in a pandemic. It has been world-changing. And it has accelerated the digital transformation of businesses, society and our industry. The inability to meet in person and the rapid shift to everything online has put pressure on the agent distribution model. So: Has the pandemic finally put the nail in the coffin of agent distribution (for all those folks out there who don’t like agents or don’t think they add value)?

The answer is a resounding “no.” I think this idea is a myth. For complex lines of insurance, mid- to large commercial line specialty insurance, high-net-worth on the personal side and other segments, agents will be necessary. There will always be a need for expert advice on risk management. And there will always be a need for intermediaries who deeply understand customer needs and can create that right combination of coverages linked to the right underwriters. These areas will benefit more and more from technology over time. But the agents and brokers are likely to be around for a very, very long time. 

It could be a bit different for simpler lines like personal auto, homeowners, pet, travel, etc. and some of the new, on-demand or gig economy types of insurance. There are strong arguments that those lines will migrate more rapidly to direct digital distribution. But even then it’s not going to happen overnight. There will be a slow evolution. My prediction is that there will still be agents selling all of those lines in 2030.  

See also: 4 Predictions for Independent Agents

Are there people out there who think you should be able to just press a button and get your insurance, so why have human intermediaries? Yes, but they are oversimplifying, and I believe it’s a myth to assume that agents are superfluous. 

In that vein, this is your call to action: Strengthen the relationships you have with various distribution partners and with the technology companies that support you in the distribution space. Agent-carrier connectivity solutions, portals and self-service capabilities all enhance that connectivity. You must form strong bonds and leverage those technologies as much as possible to improve relationships and to provide more value. And, finally, we live in an omnichannel world with many different options. Customer journeys often involve the use of multiple channels, so agents need to be incorporated into the overall omni-channel strategy.