Archives for September 2009
Life was simpler when most insurance purchases were delivered through a Retail channel. Insurance agents–not brokers, bankers, affinity groups, or workplace kiosks–were the sole source of information and advice will for potential insurance buyers. If you wanted insurance, you called an agent. The agent was the driving force behind selling and delivering the product.
But let’s resist the temptation to refer to the past as the “good old days.” I believe those days perpetually start tomorrow.
The direct model is now thriving. Inspired (!) to buy insurance by postcards, TV, radio, and print, consumers access their carriers over the telephone, or via the mail or Web. To differentiate this from the Retail model, I call it the D-tail model. It is based on the premise that if you reach out to enough consumers in a low-cost manner, some proportion will be motivated to buy. The traditional agent’s role may be limited or nonexistent, because buyers are channeled into a new business process that is handled by back office staff.
Take the Web interactions one step further and you get E-tail. In its purest form, E-Tail business is highly automated, channeled through a Web interaction, and replaces both the agent as advice giver and the “push” activities used to get consumers thinking about insurance. E-tail buyers are self-directed, and typically want to make purchases with limited or no human intervention. Some carriers, even for complex products like life insurance, are supporting a true STP model via their E-tail channel.
It is tempting to look at these three delivery models and say that one or the other is the future of our industry. In fact, all three models have a purpose. In some markets, notably the UK, they are all mature.
Retail, D-tail, and E-tail exist because each serves a distinctly different need today. But I believe that all three needs will persist into the future, and will continue to morph with consumer attitudes and technology. That is why carriers must support all three models in combination. Ideally, using a common tool set that brings a sense of cohesiveness and flexibility, while driving down costs considerably from where they are today. Carriers that let themselves become one-trick ponies in terms of sales and delivery are at risk of becoming obsolete.
There is an interesting article in The Economist this week about an innovative approach to innovation. A service called InnoCentive outsources research and development to an open community on the web. Companies can post challenges on the website and enterprising problem solvers across the world can submit solutions. Unlike many open community approaches, this one offers actual monetary compensation for workable solutions.
The service has been expanded to include a service called InnoCentive@Work. This replicates the challenge/solution market within a company and solicits responses from a company’s internal employees before moving them to the public community. One of InnoCentive’s leaders was quoted saying “Companies often don’t know how much they already know”.
Having worked for several large, global insurance companies, I could immediately relate to this statement and was intrigued by the possibilities of this innovation model. Could an outside service administrate innovation more effectively than the time-tested “suggestion box”? Could the promise of a direct cash award, distributed by an objective third party, take the place of the sometimes awarded, internal bonus for “a great idea”?
After visiting the website, I came away with the impression that, to date, manufacturing companies are participating more than service providers. However, I’m betting that some financial services firms will sign on and see results. Although the insurance industry suffers more from a lack of execution than innovation, given the outlook for constrained revenue growth, every advantage matters.
Every January, Celent recognizes the effective use of technology through its Model Carrier Awards. We are pleased to announce that nominations for the 2010 version is now open (http://www.celent.com/755.htm).
Past winners earned their recognition through outstanding implementation of software and process in areas such as agency portals, document management, claims, billing, distribution management, sourcing and policy administration.
If you know of an insurance company who exhibits best practices in the use of technology, please click on the link and complete the nomination form http://www.celent.com/755.htm
Submissions are being accepted until November 13, 2009. The presentation ceremony for the awards will be held on Thursday, January 29, 2010 at the Westin Times Square Hotel in New York City. We look forward to seeing you and your nominees there!
Recently there has been some news about Chinese regulators approves some of China banks to invest in insurance companies:
Bank of Communications got approval to purchase from China Life 51% of China Life CMG.
Bank of China (BOC) got approval to purchase 25% of Heng An Standard Life, through its wholly owned property/casualty insurance subsidiary Bank of China Insurance Company.
Bank of Beijing got approval to invest in ING Pacific, and then got approval to invest in ING Capital, by purchase share from local company Capital Group.
In 2008, China’s banking regulator (CBRC) and insurance regulator (CIRC) signed a memorandum on strengthening cooperation between banks and insurance companies and on cross-sector supervision. In principle, this allowed banks to invest in insurance companies and insurance companies to invest in banks. The Bank of Communications was the pilot of this type of investment. Next, Bank of China and Bank of Beijing got approval from regulators. It has been said that China Construction Bank (CCB) and Industrial and Commercial Bank of China (ICBC) are also interested in investing in insurance companies, and some insurance companies are interested in investing in banks.
I see all of those cases mentioned above could benefit both buyer and seller.
Bank of Communications/China Life CMG case:
For the seller: China Life CMG is a joint venture set up by China Life and the Australia’s Colonial Mutual Group, and it accounts for less than 0.01% of the China life insurance market. As the largest life insurance company in China, China Life had been trying to sell its share of China Life CMG for a long time to avoid internal competition.
For the buyer: By purchasing China Life CMG, Bank of Communications formed a financial group with banking, insurance, trust, and financial leasing businesses.
This is a case of local bank buy share from local insurance company.
Bank of China/Heng An Standard Life case:
For the seller: for Standard Life, it is “a move which would likely bolster its cash position,” according to Dow Jones Newswires.
For the buyer: BOC Insurance leverages BOC’s branches for distribution and BOC’s customer base for cross-selling. By taking a majority stake in Heng An Standard Life, BOC would be able to provide both life and property/casualty products. This is another milestone for Bank of China in the process of forming a financial group.
This is a case of local bank buy share from foreign insurance company.
Bank of Beijing/ING case:
ING has two joint ventures in China, ING Pacific Life Insurance and ING Capital Life Insurance. It wants to consolidate these businesses.
ING Pacific is a joint venture set up by ING and the CPIC Group. CPIC has a life subsidiary, CPLIC, which is the third largest life insurance company in China, and P/C subsidiary, CPPIC, which is the third largest P/C insurance company in China. CPIC was looking to sell its stake in ING Pacific to avoid internal competition.
- ING Capital is a joint venture set up by ING and a local company, Capital Group.
- ING owns a share of Bank of Beijing as a strategic investment.
- Bank of Beijing taking a share in both ING Pacific and ING Capital could make ING’s China business integration easier, since the two joint ventures would have a similar ownership structure. Also, ING could leverage Bank of Beijing’s distribution channel.
- This is a case of local bank buy share from local insurance companies.
From analyses above, we can find out that the ING case is completely different with Standard Life case. Standard Life sold shares to “bolster its cash position”, while ING’s case is aimed at consolidate its operation in China.
What is the trend I see from these cases? Firstly, allowing banks to invest in insurance companies and insurance companies to invest in banks will form new financial groups and consolidate the China insurance market; And another trend is, the bancassurance business model in China may change, moving from agency-level cooperation to deeper and broader capital-level cooperation. Banks and insurance companies could cooperate in various stages, from product development and distribution to customer service.