New technology likely will enable customers to arrange almost all of their insurance needs through remote digital channels, according to new report from Swiss Re, and will enable insurers to make use of micromarket segmentation and increasingly sell directly to consumers. While the evolution of distribution likely will be gradual, the example of the UK auto insurance market, where e-commerce sales now dominate, shows how quickly consumer buying patterns can change.
“[I]ncumbent insurers and traditional intermediaries must upgrade their business models in order to stay relevant,” Swiss Re said. “Else they run the risk of losing out to new market entrants better placed to leverage the insights about existing and prospective customers obtained through digital platforms.”
New types of intermediaries also are becoming more prominent, challenging the traditional agent-broker model, Swiss Re said, such as bancassurance, in which a bank and an insurer partner to sell insurance products through the bank’s branch network. That method of distribution has become increasingly important in Europe, Latin America and Asia, especially for life insurance. Alliances between insurers and retailers, post offices, utility companies and affinity groups also have emerged as an alternative means of distributing insurance, Swiss Re said.
The report, “Digital Distribution in Insurance: a Quiet Revolution” describes four activities in the insurance distribution process, and describes how digital technologies are being used to simplify and accelerate them:
- Preliminary information search, including marketing, basic search and information gathering and product design
- Other presales activity, such as risk assessment, underwriting, advice, personalized quote and negotiation
- Completing the purchase, including signing the contract, policy issuance, premium payment
- Post sales activity, including policy administration, claims management and risk management.
Traditionally, these activities have been bundled and managed by brokers, who have acted as intermediaries and are responsible for more than 60 percent of the insurance contracts that are sold, Swiss Re said, because insurance markets have been characterized by asymmetric information. “Intermediaries can help overcome some of these information problems, generating economic value for both customers and insurers through economies of scale and reduced co-ordination costs,” Swiss Re said.
“The internet is fundamentally affecting customer buying behavior, from preliminary insurance information search to other pre-sales activity such as soliciting advice and obtaining personalized quotes, to policy issuance and post-sales services for the policyholder. Likewise, mobile technology and telematics are changing both the location and timing of interactions between insurers and their customers, allowing the retrieval and dissemination of information from almost anywhere at any time.”
The increased availability of third-party and consumer generated data can enable microsegmentation, the ever-finer targeting of content, offers, products and service, Swiss Re said, and can help insurers maximize returns by concentrating marketing expenditure on the most valuable and profitable customers.
The availability of new technology, including big data, and shifts in consumer preferences also have increased direct sales through call centers, internet, direct mail and interactive TV. Increasingly, consumers can purchase insurance directly, and without relying brokers and agents. Direct sales of auto insurance in particular have increased in many countries, as the products have become more standardized, Swiss Re said. In the UK, for example, direct online sales of auto insurance account for more than 35 percent of premiums, more than 15 percent in China and in Korea, 15 percent of non-life premiums are generated by online sales.
“The experience of UK personal motor insurance markets, where e-commerce sales now dominate, shows how quickly consumer buying patterns can change,” Swiss Re said. “A 2014 survey indicated that by 2018, insurers anticipate nearly one fifth of their business will come from online sales through personal computers.”
The availability of big data also can be used to increase customer retention, Swiss Re said, and through predictive analytics, insurers can try to identify those most likely to defect, when and why, and take measures to boost customer satisfaction and encourage loyalty, Swiss Re said.
“The prospective benefits for insurers from Big Data applications are manifold. The future expected returns on big data investment in insurance appear well in excess of insurers’ costs of capital,” Swiss Re said. “However, such estimated returns are highly uncertain not least because the financial benefits of enhanced customer experience or improved risk selection/management are difficult to quantify.”
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