Insurance transformation: Distribution strategy

Three factors are combining to increase the pressure on insurance companies to transform their distribution strategies. The first is costs: insurers’ distribution costs have been increasing faster than their premium income for several years. This trend is likely to accelerate as high inflation boosts distribution costs (especially increasing salaries and costly IT investments) while the economic downturn reduces the scope to push up premiums.

The second factor is the evolving mix of distribution channels for insurance products. Across Europe’s five main insurance markets (France, Germany, Italy, Spain and the UK) the relative shares of traditional intermediaries are changing. Meanwhile, the newer B2B2C partnerships channel is becoming steadily more important, as insurance is embedded in third-party products and services or sold by non-insurance brands via white-label deals.

However, the mix of channels varies enormously across each of these five major markets, and between life and non-life lines, making the distribution challenge especially complex for international multi-line insurers. A number of the value levers that we highlight apply across all distribution channels, such as the need to examine compensation models and improve sales support, but many others apply only to particular channels. Channel-specific approaches and customized client offerings are therefore essential.

Finally, the different market segments that insurers address – retail, SMEs, mid to large corporates and emerging groups such as public authorities – have very different needs and priorities, requiring insurers to choose where in the market to play. While retail customers are usually seeking intuitive self-service solutions and easy access to relevant guidance, larger corporates put more emphasis on covering new risks such as cybersecurity and require a sophisticated risk model tailored to their business model. Achieving relevance across such diverse customer segments represents a huge challenge – insurers need to choose where to focus.

The levers for transformation

With these three challenges in mind, we have identified six imperatives for insurers to concentrate on if they are to successfully transform their distribution, both to defend their position and win share:

1Get the experience right

They should ensure they offer a smooth and intuitive customer experience across all channels, digital and physical. This means focusing on the quality of experience not only at the point of purchase, but also along the whole value chain, including the claims process and service inquiries.
2Weave in ecosystems and embedded finance

Attempting to provide every aspect of a best-in-class omnichannel service in-house is likely to fail. Insurers should focus on differentiating capabilities that leverage their core strengths and turn to ecosystem partners in areas where they have less expertise.
3Get the value exchange right with distribution partners

This means incentivizing agents, brokers and B2B partners to focus on the most promising client groups and provide the best possible service. However, it also means supporting distributors with efficient, user-friendly IT infrastructure and ensuring rapid reimbursement of their costs. The key here is to gain full transparency of each distribution value chain so the insurer can align commissions with sales productivity and understand the implicit costs of each distribution relationship.
4Organize around B2B and B2C constraints

To fully exploit the potential of B2B2C partnerships, insurers should focus on creating mutually beneficial collaborations with shared goals and incentives that deliver value to both sides. The proposition will benefit from steps to gain deeper customer understanding and to ensure the right offer is delivered at the right moment. This implies efforts to ensure seamless integration within the partner’s processes, enabling smooth data exchange, and coordinating joint sales initiatives.
5Use data to create a step change in sales productivity

Insurers gather huge quantities of data that can add value to their business - but still often fail to extract enough value from it. Strengthened data analytics will help to identify opportunities to improve and a streamlined implementation process will help to feed the benefits gained into sales processes.
6Get the change management right

Successful execution of transformation programs means building understanding and support among the employees who will be affected. Insurers need to create a narrative around their transformation project that allows employees to feel included in the process. It is equally crucial to avoid “scope-creep”, so the project remains focused, manageable and deliverable.

Prioritizing the steps in your transformation

How an insurer decides to transform its organization will depend on its intended market position and strategic priorities. To help guide decisions on target positioning, we defined four industry “archetypes” by distinguishing insurers on two axes – the number of distribution channels they use and the number of products they offer – and using the results to identify our four groups.

The All-rounder

A key question facing these large, full-service insurers is how they can use their channel diversity.

The Explorer

Usually mature insurers focused on a few traditional channels and/or products.

The Specializer

These insurers face a “stuck in the middle” issue between large All-rounders and Digital Attackers.

The Digital Attacker

This archetype comprises insurtechs and digital-only spin-offs from traditional players.

Conclusion

Distribution is a major success factor for any insurer and current economic conditions make addressing distribution weaknesses an urgent priority. By using our four insurance archetypes as a starting point, insurers can determine their own strategic target positioning. The six transformation imperatives that we have identified can then be applied to help structure and execute the transformation project and evaluate the company’s future-readiness.

This is the second article of our series of detailed deep dive articles on the transformation of the insurance industry. Also check out the other articles on cost and capital as well as the other upcoming blogposts on people, technology, and ESG.