As both a practice and a set of technologies, distribution management is evolving as insurers endeavor to use their data to increase organic growth and profitability, as well as to push data out to agents, producers and consumers to improve customer service through increased efficiency and self-sufficiency.
"Growth is hard to come by, and when that happens, distribution always rears its head as the area people push," says Paul Nelson, manager at Deloitte Consulting. "What's driving this is much more sophisticated segmentation of customers."
Television ads from the largest insurers increasingly target customers at defined stages of life with the intention of retaining, upselling and cross-selling to them, Nelson says. However, the independent agent model, more often than not, requires a referral or a walk-in, which comprises a diminishing share of the overall market, putting those independent agents that are not aided by a major brand in an increasingly difficult position. "It used to be that if you had good products, good people and loyal agents, that would be enough to pull you through. I think those days are passing by," Nelson says.
Confronted with these issues, Grange Insurance decided to more actively support its independent distributors by better understanding their individual business models and then aligning Grange's products, services and support to meet those individual needs.
"It's important for us to understand what those agencies need and then align our conversations and interactions so we are bringing the value they are looking for," says Peter McMurtrie, chief sales and marketing officer for Grange Insurance.
Some agency models are very transactional, high volume, price sensitive and focused on new business, he explains. Others focus on commercial lines, are relationship oriented and consultative. But there also are many models in between, and each has specific needs. For example, growth-oriented agencies focused on acquiring producers and agencies may require financial assistance, producer subsidy-type loans, training or lead generation programs. Others may be focused on co-op advertising support, or different benefit or compensation models that help them to upgrade computers.
Traditionally, agency segmentation has been done from the perspective of measuring the agencies' value to the insurer, McMurtrie says, but by aligning services, benefits and resources, Grange instead concentrates on increasing agency intimacy. "We are still going to look at, understand and differentiate the value that they bring, but we've got to earn that value."
It's a lesson some insurers have learned the hard way, having created agency portals, comparative raters and exchanges, only to find agents indifferent to those expensive efforts.
"Many insurance companies have built all the technology options, but they are just not part of the flow," says Deb Smallwood, founder of research and consulting firm, Strategy Meets Action. Independent agents want the ability to submit data to many insurers at once, without rekeying it into multiple portals, for example. "It's a lot of data that is not in their agency management system," she says. "The industry is at a stalemate."
Grange's distribution management solution is not just a set of discrete applications, McMurtrie says, but rather several pillars that support a business solution that includes: agency intelligence, the segmentation necessary to understand the agency models and their operational differences; agency dashboards that allow the field sales force to have real-time fact-based conversations with agents about what's happening relative to production and retention; customer relationship management for the agents to understand what conversations to have with whom and when; and training the sales force to delivery to have more productive interactions with agents.
Differentiators
"What we learned as we explored further is that price is table stakes," McMurtrie says. "With the sophistication of the rating models and the use of credit [scoring] and those things, they have created less opportunity to differentiate on price, so we are focusing on the ability to neutralize price and winning on all the other features, and that goes back to agency intimacy: understanding what's important to them in terms of sales support, marketing support and those types of things."
"In personal lines, where this has the largest impact, we have seen double-digit new business growth over the prior year and we can attribute much of those results to our fastest growing agencies," McMurtrie says. "Those components are not original ideas in themselves, but it's the combination of all four, and that technology-enabling component really makes it unique."
The ubiquity and lower cost of analytics are making such an approach to distribution management a reality for more mid-tier insurers, says Mark Hill, senior manager at Deloitte. "It's getting down to companies sub $600 million pretty quickly," he says. "But process is more so the driver than the tools." The process Deloitte created with Grange included the statistical analysis to do a traditional segmentation, such as traditional clustering analysis and preference scaling, Hills says, but using very different data.
Kimberly Harris-Ferrante, analyst for Gartner, expects distribution management solutions will quickly mature from multiple-best-of-breed applications to encompassing suites that link in additional functionality, such as licensing information, commission systems and manage the onboarding of new channels through a portal, for example, reducing the cost of the technology and integration, and simplifying sales management.
"The live channel is still the most important channel companies could have," she says. "On the one side, insurers want to preserve and drive loyalty and keep profitable sales people happy so they'll sell more. But on the other side, you also want to empower them to do more business and have the tools and information they need so that they are not unable to answer customer questions or call into the call center. It's about securing and managing the relationships you have."
