Disrupting Distribution Channels

The insurance industry is often viewed as behind in the times when it comes to innovation.

The burden of legacy systems and lack of agility combined with consumer protection statutes, the complexity of insurance products and distribution and the need to ensure that risks are valued conservatively, deny innovators the ready rewards gained by online retailers and new media, but that is rapidly changing. In the past 36 months, the industry has seen an explosion of new ventures backed by innovative technology approaches that were refined in other digital industries. Distribution has become the new game changer with the most successful ideas focusing on 3 areas: a digital point of presence, a product idea backed by advanced analytics and the ability to manage both risk selection and reinsurance.

Game Changing Distribution Entrants

Lemonade, Slice, Embroker, Health IQ, Coverwallet and Haven Life are new entrants that provide elements of the success criteria. The most mature retail ‘digital points of presence’ combine a customer relationship management system (CRM) with a method for both soliciting and recording a prospect’s interactions with the sales web site, mobile application, chat and voice telephony. By capturing the IP address associated with various interactions and recording them, these sites can suggest offers, engage in a conversation to answer questions and tailor the sale as well as remember your last visit.

Given the relatively fewer buying decisions made in insurance, advanced ‘retail style’ omni-channel digital points of presence are not fully present with these insurance innovators. However, the more advanced sites do keep track of the offers made or suggested, the quotes generated, and other information that can support making a qualified sale now or later. They can also track those who change their information in an attempt to minimize or hide information that would increase their costs.

Will consumers use these capabilities? The short answer appears to be yes. For Millennials in particular, the sites offer both price and convenience for product coverages that aren’t a required purchase. By educating prospective policyholders about the risks they are carrying if they don’t have renter’s insurance and by presenting new service models for applying, making claims and securing service, they are expanding the market. Furthermore, the pricing is attractive compared to traditional agent-sold alternatives.

Beyond Digital Customer Experience

Innovation for these digital points of presence isn’t just about the user experience. It’s about the insurance product and how that entices a prospect to make an easy buying decision. These advanced agencies and carrier portals are bringing new types of coverage or new variations on old products that are backed by advanced analytics. These new product designs generally fall into two categories – those that sell insurance coverage ‘by the slice’ (e.g., Slice) and those that introduce new methods for analytical underwriting. To ease the process and deliver accurate rating, Haven Life uses advanced non-medical underwriting to issue guaranteed level premium term life policies up to $1,000,000 in coverage. Health IQ, another life agency using analytics, specializes in seeking out non-traditional sources of verified public information about adult athletes and then submits that information to carriers. Other insurers then use ‘accelerated underwriting’ to rate the risk quickly and dramatically shorten the policy issue time for very large amounts of insurance. Health IQ quickly issues policies whose rating recognizes healthy behaviors and, in doing so, also creates a community that previously whose better life expectancy wasn’t considered in a simple efficient way by underwriters before.

New Ways to Mitigate Risk

The third leg of any successful insurance model is risk management and having sufficient capital. These new divisions of carriers, agencies and hybrid direct to consumer models, working with reinsurers use proprietary predictive analytics models to track claims, segment the buyers and otherwise ensure that pricing is accurate and that sufficient reserves are in place. The key is access to more underwriting and claims data than was previously available and the ability to use that information first at the point of sale and secondly as a way of analyzing claims to secure proper reinsurance and sustainable pricing.

Don’t be Left Behind

How then, do traditional insurers and agencies jump on the bandwagon? First, the carrier, agency or reinsurer must recognize they will need to build and integrate the insurance supply chain and its technology underpinnings. These solutions aren’t classic ‘out of the box’ back office applications. Neither all elements of the policy administration system nor the necessary underwriting and sales technologies come pre-configured. The marketplace for omni-channel solution providers has expanded to where there is competition and the framework can be a vendor solution. But these require substantial configuration and every implementation ends up having unique, proprietary qualities. The analytics necessary for managing accelerated underwriting or coverage by the slice, requires that the carrier have a statistically significant scale of transactions for analytics. As a result, large scale information providers such as Lexis/Nexis or reinsurers who have a large pool claims transactions and insured demographics for analysis are active participants in the go-to-market strategy, underwriting and product design.

Bottom-line

Speaking from direct experience, MVP Advisory Group LLC, utilizes one of these new entrants, Embroker, for our commercial insurance. We are not Millennials but were impressed with the positive experience in finding the insurance we needed for a good price with a process that was extremely customer friendly and efficient. The savings we incurred in time, price and efficiency was night and day compared to the broker placement model.

What is at stake in distribution today? Simply stated, it’s the next generation of insurance buyers. Buying only what is required, a preference for self-service models and convenience are the hallmark behaviors of the new Millennial consumer and business manager. Accessing them may require innovation and risk, but those that play will ultimately have preferential access to a significant share of the future market for insurance.

About the Authors: Russ Bostick is a founder and managing partner of MVP Advisory Group, LLC. Russ can be reached at russ.bostick@mvpadvisorygroup.com. Donn Vucovich is also a founder and managing partner of MVP Advisory Group, LLC. Donn can be reached at donn.vucovich@mvpadvisorygroup.com.