Other parts of this series:
- Insurers must find new distribution models to satisfy increasingly demanding customers
- Six new insurance distribution models are emerging as carriers seek to harness the huge potential of digital technology
- Big insurers are moving to omni-channel distribution channels to leverage their reach and scale in the digital economy
- Nimble insurers target digital-only customers with a single direct distribution channel
- Connected insurance offers carriers big opportunities to improve their distribution and broaden their products
- Hyper-personalization lets insurers get close to customers to deliver great experiences and additional products and services
We’ve identified six new distribution models that insurers are implementing to harness the power of digital technology. They are: omni-channel customer experience; fully digital direct; beyond-insurance partnerships; small-ticket and affinity partnerships; connected insurance; and hyper-personalization and customer-centricity.
Extensive disruption of the insurance industry is forcing carriers to devise new distribution models to better serve their customers and extend their markets.
The success of these models is likely to hinge on insurers’ ability to use digital technology to deliver highly-personalized customer services and to launch innovative suites of new products. Around 84 percent of insurers recognize that digital technology is changing customer expectations and 80 percent believe it will radically change their traditional practices. Furthermore, 39 percent expect the spread of digital technology will squeeze their profit margins over the next five years.
The rapid spread of digital technology is fueling much of the disruption that is transforming the insurance industry. Other factors include rising customer expectations, broker consolidation, the aging of insurance professionals and tighter regulatory requirements.
Several new distribution models have been implemented by far-sighted insurers eager to harness the power of digital technology. These companies are keen to gain an early advantage over their rivals and to ward off increasing competition from newcomers to the insurance industry. Each of these new models varies according to the resources and goals of the different insurers. However, we’ve identified six distinct patterns. They’re shown below.
All of these distribution models incorporate features of one or more of the others. However, they’re defined by the most predominant aspect of their method of distribution. Specialised insurers, such as Bolt, Dovetail and Goji, are concentrating on only one mode of distribution. Others, notably multinationals such as AXA and Allianz, are deploying some of these models across their multiple geographies. Whichever route is taken, it’s essential for insurers to select strategies that support their key business objectives.
Most of the six distribution models shown above are built on insurers’ core strengths. However, two of the models – beyond-insurance partnerships, and small-ticket and affinity partnerships – are extensions to carriers’ traditional operations.
Innovators such as Discovery and Zurich are developing new services that enable them to keep closer, more frequent, ties with their customers. These services stretch beyond traditional insurance markets into sectors such as healthcare, wealth management and home security. The carriers build strong relations with customers, by providing them with help, advice, incentives and rewards, which can yield substantial long-term revenues. Partnerships with a variety of service providers are essential. They enable these carriers to offer their customers a wider range of benefits and additional services. Our research shows that 61 percent of carriers intend expanding their portfolios to include non-insurance offerings.
Berkshire Hathaway and Tokio Marine are among a small group of carriers that are implementing new distribution models to address a much neglected sector of the insurance industry. They’re deploying digital technology to market highly-tailored products that cover specific risks for short periods of time. Such risks include travel delays, event cancellations and goods in transit. High quality service, low premiums and the use of digital platforms for sales and claims are hallmarks of these small-ticket services. Partnerships are again important. Third-parties, outside the insurance industry, are key sales channels for these offerings.
Both of these distribution models are opening new markets and revenue opportunities for insurers. They’re also linking insurers to a growing number of partners within and outside the insurance industry. Such partnerships are going to be vital in the new “shared economy” that is being fuelled by the spread of digital technology.