Transformation of distribution model: How insurance industry needs to prepare for ‘Next Normal’

car-insurance

By Chula Hettiarachchi

Across different industries and geographies, COVID-19 has changed the ways people engage with one another. Numerous health regulations—from social distancing to self-quarantine—have been conscientiously imposed by authorities across nations to overcome numerous pandemic-related challenges, even to the extent of shifting a large proportion of physical transactions to digital and remote platforms. This transformation continues to affect operations in many industries, including insurance.

With the continuation of physical distancing measures, industry experts point out that the insurance distribution model will be impacted both in the near term and longer-term. As the world progressively moves towards the ‘Next Normal’, our dependence on remote and digital technologies will not cease at any point but pick pace at a faster rate.  

In such a context, many insurance companies are already taking vital steps to address the pandemic’s immediate impacts, including the expansion of customer service channels into digital platforms and onboarding employees to a remote setup. The next challenge for insurance companies, on a longer-term, is reimagining their distribution model in a more digitally-oriented world.

Although many local insurers, including Softlogic Life, took key steps to adapt and respond to these pandemic-driven changes, two key highlights overshadowed the industry’s progress. First was the drop in new business and premium collection due to movement restrictions, and the second was the challenges faced by agents when building new customer relationships remotely. However, a strategic mix of digital and in-person communications have facilitated us to overcome the situation to a great extent. The real challenge was maintaining the same relationship development model, in a less interactive, digital scenario.

To address these challenges,  local insurance companies need to reimagine their distribution model across three dimensions: customers, sales models and processes, which are also referred to as enablers. Focusing on these three dimensions will help local insurance companies to prepare for the next phase of challenges set forth by COVID-19′.  

Addressing evolving client preferences

Understanding how customer preferences have transformed is the name of the game. It is safe to say that the pandemic has highlighted an increase in the awareness and importance of insurance in general. With this in mind, companies can reimagine current processes, experiences, and products to better fit life in the next normal, using a zero-based design.

It is best to point customers in the direction of protection-based long term insurance policies, which has become a vital necessity in life as highlighted by the health pandemic. Solutions of this nature helps customers invest in a secure future, with real value. This offers higher benefits to clients, sales teams and to organisations, and gives companies a competitive edge to retain business stability. Since these policies require a long-term commitment, it demands a few detailed discussions with clients, since no one commits for big continues payments for 20/30 years without extreme explanation and convincing. However, streamlining paperwork and nitty gritties to digital is also important.Therefore, companies must strike a balance between digital and in-person interaction when it comes to pitching long-term financial commitments.

Additionally, it is important to also leverage digital-only platforms to promote simple short-term insurance products that address more specific customer needs. However, it is advisable to not put all your eggs in one the metaphorical digital basket as it is still a highly competitive and unstable business model that can be replicated by competitors. Ideally, short-term Products based entirely on the digital market should be extremely simple, form just a part of a total solution, and adaptable enough to proact or react to market movements.

Gearing your salesforce to operate in the next normal

When preparing your salesforce to face the next normal, Insurers should leverage multiple virtual tools to support teams to efficiently reach out to and service customers. This includes tools that offer employees snapshot profiles of each customer base to help better align the right product with the right customer. With digital becoming an increasingly close part of daily life, it is easier to  source and leverage this to ensure effective selling. So, training, a consistent flow of information, standardized selling processes and digital tools for communication makes new business acquisition more efficient for sales forces.

 A recent PwC report[1] highlights that having an effective hybrid distribution force—a combination of internal sales desks and hybrid advisors (that use both in-person and digital channels)—will enable insurance companies to transfer remote capabilities to their skilled field sales teams.

For example, sales advisors of Softlogic Life currently work on a 100% digitally-supported sales platform, where post-sales operations of over 90% of the policies are managed via an auto underwriting platform. With these developments, the company secured over 90% of the budgeted total sales revenue last year, meeting all client requirements, including claims without any gaps in service standards.

Investing in digital tools: The ‘Enablers’ to the rescue

Digital tools, which I refer to as ‘enablers’, will bring a plethora of benefits for insurers, starting from ensuring resiliency in a crisis like the ongoing pandemic. These enablers will help organisations quickly respond to customers and insurance advisors’ present and future expectations while increasing the agency channel’s productivity. It is encouraging to see that many Sri Lankan insurance companies have realised the importance of digital tools for the customer and their salesforce as the number one priority to enable them.

However, when investing in digital technologies, insurers should evaluate and ascertain gaps in the ideal customer and agent journey for their specific business. The findings will help them develop an agile road map tailor-made to their strengths and weaknesses to begin closing those gaps.

Data is another great enabler when transforming the distribution model. With vast amounts of data stored in legacy systems, insurance companies need to look at ways to mine these data and extract critical insights to infuse more resiliency into their distribution mechanism and address the demands of customers and advisors. Whilst distinctive in-person lead generation tactics are no longer a viable option, data-driven lead generations have kicked in to bring immense value for companies during the last few months. Furthermore, insurers can build advanced analytics models to recognise lifetime value-based customer segments within their current portfolio and build additional models for each segment to identify customers at risk of churning or lapsing. With right data models, the opportunities are limitless.

In conclusion

Changing the distribution model will take time to implement. It does not only mean bringing novel technologies but also ingraining other capabilities to support the rest of the existing elements of the value chain, including claims and products. However, it is important to note that experimenting with different distribution models could be disastrous in the long term as well. Therefore, what is really needed is the continuous improvement of existing distribution models to match rapidly evolving market and environmental conditions. The distribution leaders that operate in the next normal will be the ones to begin work on the longer-term imperatives today.

(Chula Hettiarachchi is the Executive Director of Softlogic Life. He is a qualified sales and insurance professional with a career that spans a period of 40 years, 27 of which is in the life insurance industry. He joined Softlogic Life in 2001 as Head of Sales and since then has contributed extensively to the growth and development of the company)


[1] https://www.pwc.com/sg/en/insurance/assets/insurance-2020-and-beyond.pdf