The Best Advice is Personal

The Best Advice is Personal

Much discussion has happened in the industry portending the inevitable elimination of the insurance agent as consumers move to purchasing insurance direct and online. Disruption of the agency model seems to be a foregone conclusion judging by the amount of recent investment in InsureTech startups focused on transforming the distribution model. The increase in insurers offering commercial insurance direct may be seen as an inflection point not just in terms of commercial lines sold direct, but in terms of a shift in momentum from the agent to technology, across lines of business. It’s not surprising that both insurers and consumers are interested in a shift in channels. It promises to be less expensive for an insurer to go direct, and consumers are clearly showing a shift in preferences for accessing coverage

However, consumers use agents for very good reasons. Prior to direct purchase on the internet, consumers needed agents to access different markets. There was no mechanism for a consumer to purchase directly from an insurer. With the advent of digital agents, aggregators, and direct-to-consumer insurance insurers, this reason is less important than it used to be. However, replacing an agent isn’t as simple as simply automating access to markets.

One of the primary points of value provided by an agent is personalized advice. Although access to markets is more readily available, consumers still need advice and guidance. Insurance is a complicated product. Understanding which coverages they should purchase, what limits and deductibles are appropriate, and whether additional terms or endorsements are relevant is one of the key points of value that an agent offers.

Consumers are more financially literate than ever before given all the information available on the internet, yet still want transparency in the choices available, and value guidance and advice as to what options are appropriate and why they are appropriate. 58% of consumers surveyed say that when choosing a financial services provider, they are looking for a personalized offer, tailored to the individual firm or person.

Until an insurer can accurately and appropriately provide advice it is unlikely we’ll see a wholesale shift of the channel. Some insurers focus on giving consumers choices by providing price comparisons with other insurers. Others have tried to provide choice by labeling side by side choices with titles such as “less coverage”, “standard coverage”, and “more coverage”. But these choices don't usually have any relationship to the actual risk profile of the prospect and don’t offer any suggestion as to why one option is better than another. Consequently, consumers aren’t confident enough to make a decision.

Want to know how to improve online conversion? Provide actual advice to a prospect with an explanation as to why a particular limit, deductible or coverage is relevant. Anecdotal conversations with companies who have implemented a feature like this indicate potential conversion improvements of 20-30% or more.

Automated advice comes in a variety of permutations that vary depending on how much automation is utilized and how much personalization is provided. Insurers can assess their capabilities and determine how to proceed down the path. Even small amounts of advice seem to have an impact on conversion.

Automated advice can range from very simple parameter driven advice, to incredibly sophisticated advice-for-one backed up with sophisticated analytics. It can be delivered via simple online suggestions, or through a guided journey using a chat bot. Each successive generation of advice engine seems to bring increasing benefits when it comes to conversion.

Yet automated advice also carries potentially significant risks. The customer is relying on the technology – including the assumptions and methodologies that underlie it. For example – did the system ask the right questions; did the prospect understand the questions adequately to answer accurately; did the algorithms act as intended, were the underlying business rules appropriate?

Using third party data can mitigate some of these risks, but raises other issues including the accuracy of that data. On the one hand, consumers are more financially literate, are looking for more transparency and control, and expect insurers to utilize technology in an online environment. However, insurers also have to be careful not to be creepy when using third party data.

Insurers can overcome creepiness by not overreaching, and by clearly communicating how they arrived at their conclusions. In this transparent world, the path to the recommendation becomes nearly as important as the outcome.

Interested in learning more about automated advice engines? Check out my newest report “The Best Advice is Personal: Robo-Advisors v. Agents”.  

Strategic issues in insurance distribution management

Strategic issues in insurance distribution management
Carriers use a variety of techniques for growing the book and most consider distribution management as a key component of their growth strategy. They are expanding channels, adding distributors, moving into new territories, and working to optimize their existing channel to improve customer acquisition and retention. Some carriers are investing in improving the servicing of distribution channels. Others are focused on managing the compliance aspects of distribution management — assuring the distributors have the right licenses, and that state appointments are made in a timely manner. Many carriers are concentrating on using compensation tools and techniques to more effectively stimulate production. To understand what top carriers are doing in this area, I conducted a survey of carriers around this topic. The goal of the survey was to understand how the carriers are organized to manage the distribution channel, what types of techniques they use, how effective those techniques are, and what challenges they face. Check it out here.
  • In most organizations, a formal Distribution Management organization has primary responsibility for channel management. Managing relationships and compliance are seen as the biggest issues they face.
  • A wide variety of compensation techniques are used by carriers and most say they get value from those programs – although carriers report that it is more important to calculate compensation accurately than to assure compensation is effective at driving desired business. Some techniques such as incentive comp and contests may only be available to top tier or qualifying agents – but receive mixed reviews on their effectiveness. Only 25% of those offering incentive compensation programs see them as effective. “Having an incentive compensation program isn’t highly effective, but not having one would be even worse.”
  • Most carriers rely on a variety of different systems to manage compensation – including Excel and find efficient calculation and distribution of compensation to be quite challenging. For many, the ability to administer a compensation program easily is the key driver as to whether the program will be offered. While they may wish to utilize a particular technique, their technologies create barriers.
  • Compliance is another challenging area with many carriers in the early phase of considering additional automation.  Fewer than half of carriers have automated any of the major processes – validating licenses, processing an appointment or providing self-service to distributors. Those that have automated the processes generally report them as delivering value.
Managing the distribution channel requires discipline in a number of areas – from managing the day-to-day relationship, assuring the distributor is in compliance with the licenses and appointments, and strategically managing compensation. However, carriers face significant challenges in performing these tasks efficiently. Carriers looking to improve distribution effectiveness use technology as a strategic differentiator.

How relevant is the traditional Life insurance agent?

How relevant is the traditional Life insurance agent?
Our team spends a lot of time thinking about the role of the agent. Over the years, we have seen considerable change, particularly in the application of technology. What we have not seen change is the agent. By agent I mean the “transactional” life insurance agent. Their business is made up of selling life insurance, usually at the kitchen table of the proposed insured, and that is their primary focus. You can picture the agent: they arrive carrying a briefcase that contains paper applications. They will likely be in a suit, or at least a sport coat, sometimes with the logo of their carrier or agency in a nice crest. They consult with the proposed insured, or more likely the husband and wife, and then sell them a policy by filling out the application with their ballpoint pen. This very old school approach has not changed since our parents bought insurance. This is still a successful model for some, but we believe it will be less so as time marches forward. But if you are one of these agents and recognize the need to change, what do you do? Many have already transformed their practice into that of a financial advisor or wealth manager, and that’s a great direction, but it is not for everyone. One approach follows a slightly different path and acknowledges the changes in the marketplace being driven by exchanges. The agent could license private exchange technology from one of several vendors and build a brand. They would advertise and push this brand and steer potential customers to a website where they could sell major medical, both on and off the federal and state exchanges. They could sell supplementary products and, perhaps most importantly, they could sell transactional life insurance, focusing on term. Back in the office, the agent could have a small call center team. Their role would be to answer phone calls from people that either came through their website or were referrals. You see, if it is easy and transactional (can you say term?), then we would want one of our modestly salaried team to handle it over the phone. The agent’s energies would then be focused on a combination of marketing (establishing the brand) and sales (focusing on the big win), including large-face life and large annuities. This is one option, and one perspective, but one that we believe should generate discussion. Tom Scales Follow me on twitter @tjscales