The customer is showing us the path

Distribution within the insurance industry has become increasingly diverse over the years and now, more than ever, insurers need to ensure customers can access their products through every possible channel.

There are three key factors – the needs of the customer, the needs of the broker and the needs of the insurer. Technology will be central to all three, but culture, people and processes will be just as important.

We have only to examine recent media coverage of the way that aggregators are charging for products offered to clients to see how the industry has been forced to refocus its efforts on the distribution challenge.

What can we deduce from these developments? Well, aggregators, banks and brokers all have a role to play – and they are not always pulling in the same direction. Witness Norwich Union’s decision to pull its direct motor products from price comparison websites after repositioning itself as a direct insurer that displays competitors’ prices for car insurance online in addition to its own.

To do this, the insurer has launched a web and phone service that gives customers the prices and products of its competitors – an interesting response to the increasing dominance of aggregators and one that some customers may respond favourably to.

Customer needs and expectations are now driving the development of distribution strategies in the insurance market. The days of insurers unilaterally determining the presentation of insurance to customers are coming to an end. Now we see evidence that customers are feeding back their demands to the market, specifying the types of product they want and the channels where they want to buy them.

So what do insurers need to know to cope with this changing market? And what can the industry learn from other sectors? We now have highly financially educated consumers, adept at online self-service and accustomed to 24/7 access to their financial matters. Suddenly, a yearly premium statement and renewal form sent in the post seems a little archaic. Brokers and insurers alike will need to adapt to meet the demands of the new world of distribution.

We can expect a significant review of product and distribution strategies across the industry. In simple terms, the question is: which products and through what channels? Getting this right will be critical to success – but it is also important to recognise that some existing products and channels are no longer practical for some customers.

Insurers need to offer products that are both e-enabled and available through traditional offline methods. Technology platforms will have an impact on what different market participants can deliver.

Brokers and insurers alike are still dealing with acquisition and legacy systems – often running different aspects of their business on multiple platforms. That can lead to having to build a single product over and over again for different channels. Those old products and ways of working are complicating the business of putting everything online or through multiple channels, which prevents good levels of consistency across all the different routes to market.

Ideally, insurers and brokers should strive to achieve a single view of the customer regardless of channel – this client-centric model has huge benefits in terms of cross-selling, offering loyalty and reward schemes and reducing duplication.

Right now, some insurers are building separate products for the web, for direct sales, for the intermediary channel and then again for affinity partners, because of the drag caused by older systems.

Only the right technologies will allow them to unify these aspects of build and distribution. These technologies, which enable insurers to move into a wider range of channels than they can currently deal with, are in huge demand across the industry.

The problem is, many insurers spend the majority of their IT budgets on maintaining legacy systems rather than investing in new technologies. That balance needs to be reversed if the market is going to open up to what can be achieved.

So, for example, will we see investment in new point-of-sale technology to deliver the customer proposition at the lowest possible cost? This type of offering could prove very tempting for clients looking for the cheapest deals.

Some of these changes are seen as technological initiatives but are not really about technology at all. It’s more to do with where the customer is gravitating to and, as an industry, how we respond to it. Customers have online banking, so they start to expect other financial products online.

Looking at the changes we might start to see in the wider financial services market, we can also expect market participants to start trying to secure distribution capability outside of the traditional sources to increase economies of scale or protect market share.

While distributors have historically acted as a standalone business, the challenge of integrating and producing further benefits should not be underestimated. This may drive further mergers, acquisitions and deals in the market.

Kathy Duggan is a business consultant at Target harlosh.