Tag Archives: distribution

How Machine Learning Transforms Insurance

We like our insurance carriers to be risk-averse. So it should come as no surprise they are often last to innovate. Insurers need to feel very comfortable with their risk predictions before making a change. Well, machine learning is writing a new chapter in the old insurance book. There are three key reasons why this is happening now:

  1. New insurtech players are grabbing market share and setting new standards. Traditional carriers have no choice but to follow suit.
  2. Customers are expecting Netflix/Spotify-like personalization, and have no problem changing providers — this trend is expected to grow as we see more millennials maturing out of their parents’ policies.
  3. Getting started with machine learning is becoming VERY easy because of open source frameworks, accelerated hardware, pre-trained models available via APIs, validated algorithms and an explosion of online training.

As with any innovation, it only takes two things for widespread adoption:

  1. Potential to improve business goals.
  2. Ease of establishing pilots.

With time, we see that successful pilots become products. Teams are hired/trained, resources are allocated, business goals gain more “appetite” and models are tweaked.

For P&C carriers. we see the opportunity for improving business goals and easily pilot machine learning in the following areas:

Risk Modeling

Given the complex and behavioral nature of risk factors, machine learning is ideal for predicting risk. The challenge lies in regulatory oversight and the fact that most historic data is still unstructured. This is why we often see machine learning applied to new products such as those using data from IoT sensors in cars (telematics) and home (connected home). But innovative carriers are not limited. They use pre-trained machine learning models to structure their piles of unstructured data: APIs to transcribe coupled with natural language understanding (NLU) extract features from recorded call center calls, handwriting and NLP/NLU tools for written records, leading toward identifying new risk factors using unsupervised learning models.

See also: 4 Ways Machine Learning Can Help  


Carriers can get an actuarial lift even without designing and filing new actuarial models. Using machine learning to better predict risk factors in existing (filed) models. For example, a carrier may have already filed a mileage-based rate-plan for auto insurance but rely on user-reported or less accurate estimates to determine mileage. Machine learning can help predict mileage driven, in a less biased and more accurate way. Similarly, APIs to pre-trained chatbots using lifelike speech and translators can turn website underwriting forms into more engaging and personalized chats that have a good chance to reduce soft fraud.

Claims Handling

Claims handling is a time-intensive task often involving manual labor by claims adjusters onsite. Innovative carriers already have policy holders take pictures and videos of their damaged assets (home, car…) and compare with baseline or similar assets. Carriers could easily leverage existing APIs for image processing, coupled with bot APIs to build a high-precision model, even at the expense of low recall. Compared with having 100% of the book handled manually, a triage bot that automates even a mere 20% of the claims (with high precision) can enable carriers to start with a low-risk service that’s on par with new insurtech players and improve ratios over time. Such a tool can even be leveraged by adjusters, reducing their time and cost.


While personalized pricing may be regulator-challenged, personalizing the insurance product offering is expected in this Netflix/Spotify age. As basic coverage is commoditizing, carriers differentiate their products based on riders and value-added services, not to mention full product offerings based on life events. Carriers can (with consent, of course) leverage social media data to tailor and personalize the offering. Similarly, marketing departments can use readily available recommendation algorithms to match and promote content about the benefits of certain riders/value-adds to relevant customers at the relevant time.


The world of insurance distribution is growing in complexity. Carriers are struggling with the growing power of intermediaries, and agents are having hard time optimizing their efforts due to lack of predictability of loss commissions. Point-of-sale and affiliation programs are growing, and with them the need for new distribution incentive models. Both traditional and new distribution channels could benefit from machine learning. Brokers, point-of-sale partners and carriers can leverage readily available machine learning models and algorithms designed for retail, to forecast channel premiums. Carriers can grow direct channels without growing headcount, using pre-trained chatbots, NLU and lifelike speech APIs.

See also: Machine Learning: A New Force  

Machine learning is part of our everyday lives. Innovative insurers are now jumping on the ML wagon with an ever-growing ease; which carriers will be left behind?

Modernizing Distribution – Now

“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:

Customer Needs

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.

Distributor Dilemma

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.

See also: How to Use AI, Starting With Distribution

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.”

Is P&C Distribution Actually Digitizing?

Today, the discussions around insurance distribution channels are in perpetual motion – everyone has an opinion as to where it’s going. But where is it today? What has changed? What hasn’t? And where are the investment dollars going? These are great questions, and most insurance professionals are interested in the answers. With that in mind, SMA conducted research about today’s distribution trends – and the findings are presented in P&C Insurance Distribution: Responding to a Rapidly Changing Ecosystem. Understanding where the current industry trends stand is important so that insurers can benchmark their organizations’ progress relative to competitors and the industry at large. The data is interesting, of course, but several important questions do arise that insurers need to consider and answer. In other words – get under the covers!

When asked about digital strategies, 46% of responders indicate they are working on a digital strategy – but it isn’t in place yet. Given that rather significant percentage, one has to wonder if the spending around agent/broker portals (83% indicate it is #1) is for tactical reasons or strategic reasons. One could quickly conjecture that, either way, portals solve a business problem. So, there is value. That’s true … and it’s not. If the portal investment is not aligned with a corporate digital strategy, then the investment could be for naught because it does not support the overall corporate direction and might be throw-away dollars and effort. Perhaps the portal only holds value for a certain group – for example, agents and brokers – but misses the mark for customers. Does that mean that insurers should do nothing until a digital strategy is nailed down? That would not be practical either. The point is that when advancing digital capabilities in a tactical fashion, flexibility must be a core project goal. The technology choices for platform and installation (cloud vs. on-premises) must be capable of responding to strategic choices as they are made and not be unidirectional.

A second critical question arising from the digital distribution spending research data relates to the amount of focus insurers are placing on internal processes. Survey results indicate that less than half (46%) are spending on internal operations to meet digital distribution goals. The question that arises is: Are insurers focusing on other technologies because their internal processes are already aligned to digital distribution transactions and outcomes? Or do insurers continue to believe that the corporate external-facing capabilities are most important – and internal processes can continue as they always have? Digital transactions expose internal processes that are holdovers from a manual, paper-based world. Billing is a perfect example of this. If a portal allows a customer to submit payment via a credit card but then advises the customer it will take three to five days to post (as the payment goes through standard internal, manual-posting processes) there is a serious disconnect from today’s digital world and what that customer expects to happen. As insurers assess and advance various digital distribution strategies, it is imperative that internal processes be re-engineered from the outside in so that interactions flow logically from the perspective of the agent/broker and consumer. This is not easy, but it is a critical element for success.

See also: How Digital Platform Smooths Operations  

In addition to technology spending trends, P&C Insurance Distribution: Responding to a Rapidly Changing Ecosystem explores the changing relationship between insurers and agents/brokers due to changing distribution demands. The report also provides insights into the role of startup insurtech distributors that are responding to changes in the marketplace and making inroads. There are many points that insurers must consider as they move forward with distribution channel decisions. Every insurer is going to be on a different discovery path. As that journey moves forward, it is critical to look under the covers of those decisions. Customers, agents/brokers and employees all have a stake in outcomes. The points of view and levels of involvement will be different – but they must all be considered.

The Future of P&C Distribution

How much will the distribution of P&C insurance change in the next five years? This is anything but an academic question. Insurers, agents/brokers and tech companies are all trying to read the tea leaves to position for success in a changing environment. Insurtechs focused on distribution are numerous; new entrants are surfacing every day. And the inexorable and rapid move to digital is the overarching theme that is affecting all of insurance, including the distribution area.

SMA’s recently released research report, The Future of Distribution in P&C Insurance: Transformation in the Digital Age, takes a look at how insurance executives believe distribution is likely to evolve. The ways that personal lines and commercial lines distribution go forward are expected to be quite different. In general, insurers expect significant consolidation among commercial lines agents and brokers and see the trusted adviser role rising in importance. Major disruption by insurtech and entry by the global tech giants (Google, Amazon, etc.) is not anticipated to be as much of a factor, although still an important one. On the personal lines side, 59% expect major disruption by insurtech, and almost half assume that the global tech companies will play a significant role in the distribution of auto and homeowners insurance.

See also: Future of P&C Tech Comes Into Focus  

Other factors that will change the distribution channel environment include the continuing rise of direct (especially for personal lines) and an increase in comparative rating, which both personal and commercial lines executives foresee. There are two aspects of change that are especially noteworthy. First, almost no one predicts that insurance distribution will be largely unchanged five years out. In fact, none of the personal lines execs and only 8% of commercial lines execs responding said that distribution will be about the same in five years. The second interesting finding is that only 10% of personal lines insurers believe that agents will assume more of a trusted advisory role. In our view, it will be critical for personal lines agents to up their game. This includes becoming more of an adviser in a world that is increasingly connected and digital and has a changing set of risks. In addition, agencies must embrace the digital world to meet customer expectations, improve operational efficiencies and gain more insights into prospects, customers and their insurer partners.

Insurers also expect emerging technologies to have a huge impact on distribution. Artificial intelligence, chatbots and mobile/digital payments are the top three technologies that insurers plan to invest in over the next three years to enhance their capabilities in the distribution space.

See also: Key Strategic Initiatives in P&C  

Pundits have been predicting the demise of the agent channel for decades, yet the channel is still dominant. The word “disruption” has been used in relation to distribution more than any other area of insurance. And to be sure, P&C insurance distribution is poised to change significantly. But ultimately, SMA expects agents and brokers to still be playing a major role in five years, although the agencies of the future might look quite different than those of today.

What CVS/Aetna Can Teach Insurers

In early December 2017, CVS Health entered an agreement to buy Aetna for approximately $69 billion. Not only would this acquisition be the largest health insurance deal on record, but it is also likely to change the face of the health insurance industry.

So what can we learn from it? Quite a bit.

What can the insurance distribution business learn from CVS?

Lesson 1: Perhaps the biggest lesson is that, rather than wasting your energies resisting change, it is wiser to put change to work for you. The specter of disruption and the trends underlying disintermediation can be your business’ greatest assets if you’re willing to adapt, work within the laws of economic physics and embrace customer-centricity

Lesson 2: The consumer and his/her omnichannel convenience needs to drive future-facing strategy. With this in mind, companies will need to work to better understand their customers and to tell apart their different customer types.

Lesson 3: Once that’s done, companies can identify which customer type — which unique market segment — is most important to their business and how that relationship can be strengthened and sustained.

Lesson 4: You may need to tweak or even somewhat redesign your product/service offering to better accommodate those clients best-served by the unique combination of your available and potential resources, expertise, technology and employees.

Lesson 5: In some cases, you’ll discern gaps in your offering that require you to invest in new technology or to recruit and train new employees to specialize in specific markets. You might even look at merging with or acquiring another firm that will strengthen, complement or supplement your offering and help you to meet the demands of tomorrow’s more sophisticated and demanding customers.

If all that sounds like a tall order, it’s because it is. You’ll have to use some elbow grease and put in the leg work. But there are also ways to make the work a little less daunting and give yourself an edge. Leveraging digital platforms and big data innovations, smart businesses are enabling highly efficient transactions that are both customized and scalable.

See also: Global Trend Map No. 9: Distribution  

Of course, there are also lessons aplenty to be taken not just for your business on a granular level but on a wider economic level. Consumers will no longer tolerate a supply chain that sees their vital products and services changing too many hands with too little added value. Today’s customers expect service providers to go out of their way to not just meet their demands but to anticipate their needs. This is especially true when it comes to services delivered by supply-side intermediaries.

This isn’t just the case for healthcare; it holds for all essential services. The insurance industry at large, and especially brokers and agents, besieged by the forces of disintermediation, can learn a lot from CVS.

When it comes to insurance intermediaries, that means keeping a finger on the pulse of the demand side of the industry, identifying transformational market forces and re-examining your business model to see how you can put those forces to work for you.

As demonstrated by CVS’s acquisition of Aetna, if you can streamline the delivery of your goods and services so that your presence is a benefit rather than a detriment to your customers, you’ll not just win the day but the morrow as well. The value proposition of an end-to-end, customized and data-driven experience is not unique to healthcare. In fact, that experience should be adopted as the guiding mantra and policy-shaping battle cry for insurance agencies and brokerages the world over.

Final thoughts

CVS is a giant in its industry, and it still had the humility and foresight to understand its predicament and prepare accordingly. It would have been much easier for the company to rest on its laurels and for the C-Suite to take solace in its strong earnings reports. It would have been easier, and it would also have been a mistake. You cannot ensure future success on the basis of past actions alone. Whether you realize it or not, if you work as an insurance intermediary, disruption is coming for you.

As Eric Andersen, CEO of Aon Benfield, bluntly declared in 2015, “The traditional broker chain… could collapse… as reinsurers, carriers and their brokers all look to move more closely to the ultimate client.”

Whether through M&A, joint ventures, a niche strategy or a technology-driven continuance strategy (or something else altogether), now’s the time to explore every possible avenue to improve your business’ market resilience. The underlying forces of change are sweeping through the insurance industry and compelling forward-thinking operations to act.

2017 clocked in with more than $20 billion worth of M&A deals. What’s more, the second half saw a 50% increase from the first. That’s remarkable.

At the same time, technological innovation is pushing forward at an equally rapid pace. Accenture reports that “Some 83% of insurance executives expect platform-based business models to become part of their growth strategy over the next three years.”

Either way, one thing remains clear: Insurance distribution businesses will need to adapt to a fast-changing environment to ensure that their value propositions remain viable in the face of uncertainty.

To survive, your business will need to deliver a more customer-centric and more end-to-end experience.

At the company level, this means having more support staff and specialists to provide not only quick and comprehensive but also innovative and customized solutions for problems that your customers might not yet even realize they have.

It’s here that smart technology can be the game changer.

First, it provides better integration and visibility across the entire organizational structure. Data points are collected and centralized on the account level through a number of input sources — including email correspondences, the client portal, broker/agent-entered data, public records, social media, telemetry devices, BI insights and more. This ensures that all relevant information is at the fingertips of the interested party — anywhere at any time. Information will no longer be siloed between departments, and it will be shared automatically. After all, it’s often these extra customer insights that can make a difference.

For example, any number of data points can speak to a new policy need or an opportunity for upselling or cross-selling. If that information is kept with, say, the marketing department and not shared with agents, a huge potential opportunity could be missed.

Of course, this streamlined system also needs to be monitored and managed in an intelligent, timely, appropriately granular and end-to-end way. Not every approach or idea is going to work, so agents and brokers will need to understand where they are seeing a return on investment and what needs refinement. Risk taking will be a required part of the business moving forward, but that risk can be mitigated with smart tracking and analytics.

See also: Distribution: About To Get Personal  

Today, consumer preferences are shifting, and this will only continue. Forward-minded insurance professionals know this and are working to build their businesses to dominate tomorrow’s industry landscape.

In fact, 84% of insurers report being increasingly pressed to reinvent themselves and evolve their businesses to survive and thrive in disruptive environments.

Companies need to be constantly thinking about how they can cater to a new generation of consumer, those who want one-stop shopping and value the ease of buying products and services above all else.

The agencies that are smartly leveraging technology to develop ways to make their customer experiences more personalized and convenient are going to succeed over the long run.

In other words, the CVS-Aetna deal is — at its core — about streamlining the supply and distribution of healthcare in a way that meets shifting consumer expectations and provides a more end-to-end, customized and data-driven service.

You can find the full paper here.