Distribution is a key to success in any business. And in few more so than life and morbidity risk insurance, where, classically, products “are sold, not bought”.

Historically life companies have been supported by brokers with varying degrees of independence and/or armies of agents, either directly tethered to the carrier or working for tied distributor firms. While other distribution channels have been available, face-to-face dealing has mostly remained the source of mainstream life and morbidity product sales.

In some ways, the classic model has proved remarkably durable. But change is in the air. And even in markets where the direct sales force dominates, the wind will begin to shift in increments before long.

In some places, various factors have brought about steep declines in traditional adviser sales forces. This shift is not simply a matter of a changed relationship with producers. It means that insurers are more removed from customers than before and there is often another organization juxtaposed between them and the end-consumer. Understanding consumer attitudes and behaviours, and brand building, all become more difficult.

Part of this is due to regulation, wherein compelling sales advisers to meet higher qualification standards has discouraged new sales people from coming into the industry. In the end, it means the overall traditional sales force within any given market is both ageing and shrinking.

If insurers want to increase their distribution power in the face of these changes, they need to explore new channels and develop new strategies. As face-to-face buying of life and morbidity products undergoes overall relative decline, buying direct must be increased.

The Internet is a powerful medium for a wide variety of products and services and younger-generation consumers are very comfortable with – indeed, often prefer – to surf the Web in search of information and potential suppliers, comparing offers and then buying. This involves various financial services such as online banking, investments, moving money between accounts and funds and property/casualty insurance. Indeed, consumer experience in accessing all of these financial considerations via the Internet has catalysed the desire to buy life and morbidity products in the same way.

Forward-thinking insurers are working at realizing the potential of direct-to-consumer (D2C) sales by leveraging technology to make access to information, advice and products available wherever consumers want it. In Australia, for example, serious commitments from players that understand customers and marketing have catalysed robust sales that continue increasing.

D2C sales offer a major opportunity for growth, especially where face-to-face selling is in decline, under threat or not keeping up with marketing and sales goals.

The shift to self-service If there is a trend towards consumers dealing direct, how are they to be served, and by whom?

On the basis that more complex needs are best met with the help of professional advice in the classic face-to-face environment, the D2C focus must be on simple products: clear need, clear understanding, simple application process, speedy fulfilment. These products tend to become commodities, meaning that price comparison is easy. So the prime source of differentiation and competitive advantage is service; and such emphasis on service delivery performance means that reputation and brand are not far behind. Success is founded on a great process that works smoothly for all customers. This means deploying all available access media as appropriate and ensuring that even customers outside the mainstream feel that they get a good outcome. Even though successful direct selling means specialization, segmentation and targeting, applicants falling outside the target profile need helpful options, such as alternative sources of coverage and price options.

Underwriting engines are especially suited to the D2C environment. They facilitate:

  • Online or telephone access
  • Fast risk assessment; one-step underwriting if required
  • Appropriate drilldown into risk disclosure, assuring appropriate risk management measures
  • Automated ordering of further requirements
  • The ability to suit the process, especially the application form, to the target market and even to the individual, without redundant questions.

On current evidence, though, offerings vary greatly in the quality of their service delivery.

SelectX undertook some mystery shopping during 2011 of 70 life insurers’ websites in various markets to see how easy it was to buy life insurance directly online, from quotation through to fulfilment. All the insurers selected were medium to large companies operating in the life and health sector and with established brands. Of the 70 companies, 28 provided an online quotation but only 16 allowed going on risk immediately. Of these, some only did so if all health questions were answered “No”. Only seven insurers quoted a rated premium as a result of a minor medical risk such overweight or mild asthma. In most cases the process was quick – under ten minutes – but too often the outcome was disappointing and inconsistent with great service. There was a huge variation in the customer journeys and the underwriting questions asked, suggesting little thought given to the customer’s experience.

Aggregator sites often bring process inadequacies into sharp focus. One site we visited recently was able to provide indicative quotes for several insurers. For one company the customer was able to buy now using a slick, well designed and thought through process. Another company did give the opportunity for instant fulfilment but the customer journey seemed to have been designed by the compliance department rather than by anyone who wanted the applicant to feel motivated to go through to completion. Worse still we had, on the same page, hand-offs to a tele-interview process (not in real time obviously) and, worst of all, a couple of companies who offer a downloadable application form that can be printed and mailed to the company.

In one extreme example a company offered to send an agent to pick up the paper application form. And in another, on completing an online application form, the applicant is told ‘someone will call you’.

All of the above points to companies who have decided to go online but have not given much thought to the process. It should be obvious that producing a good online proposition is more than just putting a paper application form online. But some companies seem to miss the point completely with the customer being put through a poorly considered process. We hear of application completion percentages that struggle getting to double digits – is it any wonder?

Many of the current processes, whether with or without an adviser, give consumers an indicative quote based on minimal information – usually the type of product required, age, smoking status and, for now, gender. In some markets the percentage of applicants who are rated is one in five, perhaps one in three on some disability products. How can an adviser base a recommendation on a process where the choice of product and carrier may be based on an indicative quote?

In this day and age consumers are used to buying auto, travel and home insurance online. Some will argue that protection business is different – but do consumers care? Customers who don’t require large face amounts and who don’t have complex financial requirements are quite prepared to research solutions for themselves on what they want. And when these very same customers want it, they want it now, and at the price they have been quoted.

Many of us will have bought airline tickets online at one price only to find that the final price increased, once assorted ‘extras’ that really don’t feel like extras and more like ‘basics’, have been added. Do your own customers feel this way?

Insurers need to put the customer at the heart of the process and design it around them.

The real battleground of competition will not be on product but on process. Is yours fit enough to survive?

Note: This article references material published in ‘Underwriting engines: the new strategic imperative’ published by SelectX and Hank George.

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