Of course, transformational change is not so easy to accomplish. Agents have historically been resistant to change, significant amounts of technology and innovation are required, and some insurers still struggle to separate the performance of new business from that of the in-force book.
Human-to-human interaction will remain key to insurance distribution, but the role of agents will change as the use of data and predictive analytics grows, customer behaviors evolve (with the use of mobile devices and social media, for example), regulations continue to change, digital players from adjacent industries look to disrupt the insurance industry, and traditional competitive pressures continue to increase.
1: THE FOUR FOUNDATIONAL ELEMENTS OF TRANSFORMATION
Carriers should identify, design, and implement a set of holistic initiatives based on the four foundational levers of transformation. Depending on the carrier’s starting point and ambition, it is quite possible to lower acquisition costs, reduce administration and deploy capital more efficiently.
A: Reinvigorate the agency. The term “agency” is used to include any form of human-to-human distribution. Insurers need to start by improving agent “life cycle” management: recruiting, onboarding, and retaining agents to create a more vibrant and productive channel. In many locations, the agency force is aging and the industry is finding it difficult to recruit the next generation of talent. In many developed countries, the average age of agents is 56 and recruiting the next generation has proved challenging. Only 4% of millennials are interested in a career in insurance.
Insurers need to segment their agents based on performance and build a more nimble support function to help them maximize their potential. Individual agent compensation should increase to motivate existing high performers and attract new talent.
B: Revamp solutions. Most insurers considered their primary customers to be their agents. This has resulted in products that are overly complex, do not resonate with customers, and reinforce the adage that life insurance is “sold not bought.” It’s time to design simpler and more customer-centric solutions and ensure that the average customer understands how these products can address their needs.
Divert Agent's need from “pushing products” towards “providing holistic solutions.” This will require more training and a focus on creating new offerings that address evolving needs around health, wealth, and wellness. This approach could help counter many consumers’ distrust of the life insurance industry. 36% of consumers rate the honesty and ethical standards of the insurance salesperson as low or very low.
C: Drive efficiencies. Raise productivity by investing in digital and advanced analytic capabilities that can provide agents with qualified leads with a high propensity to buy and qualify for coverage. Insurers in China have made significant per agent productivity gains thanks to their transition to a digitally delivered, analytics-enabled, end-to-end experience.
Automation and artificial intelligence will be critical to driving efficiencies and making the underwriting process simpler, faster, and less invasive, thus reducing overall costs (such as those associated with medical exams). For example, straight-through processing can modernize, streamline, and automate front-, middle-, and back-office processes. Proven tools such as e-application, e-delivery, and case tracking can reduce acquisition and administrative expenses while improving the customer and advisor experience.
D: Address the in-force book of business. Investors and insurance executives must isolate the economics of the in-force book, new business, and distribution to determine where value is being created or destroyed. Too often, they find unwelcome surprises, such as new business being written at a loss in order to sustain the in-force book and distribution structures. This is mostly a problem in mature markets, where carriers often struggle with capital intensive/low-return in-force books.
2: THE AGENCY OF THE FUTURE
The pace of change will accelerate. Some insurers are already making bold distribution moves, and that is important because digital players from adjacent industries are looking for disruptive opportunities, perhaps as part of a broader health, wealth, and wellness planning and advisory offering.
A: Automation - Although there is no one-size-fits-all formula for success, the agency of the future will likely be fully automated, will provide agents with qualified leads and other digital and analytic capabilities to boost their productivity, and will address customer needs more holistically, with richer solutions across their lifetimes.
B: Human Interaction - Despite all these necessary changes in insurance distribution, human-to-human interaction will remain vital. Direct digital sales will mostly involve simpler products, such as term insurance, unit-linked (variable) savings contracts, and personal lines of insurance. Given the complex nature of many life insurance products and the emotional component often involved, human interaction and distribution will retain their value and importance.
C: Distribution Inefficiencies - Inefficiencies in distribution are a drain on the entire insurance ecosystem and are not sustainable. While some carriers have begun to experiment with new products, accelerate underwriting, and digitize the middle and back offices, there’s been no transformational change in distribution and no one company has emerged as a clear leader. Insurers that approach the problem holistically, looking for ways to reinvigorate the agency, revamp solutions, drive efficiencies, and address their in-force books will unlock significant value.
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