Knowledge democratization is a key factor in disrupting the industry's distribution models, as greater web (particularly mobile) access to information, combined with increasingly sophisticated online portals, allow consumers to shop for and buy many lines of insurance without an intermediary.

Securing customer loyalty is likely to be far more challenging as insurer ownership of client relationships is undermined by new types of go-betweens or direct-to-consumer distribution. One example is small-business owners, as 61 percent of respondents to a Deloitte Center for Financial Services survey said they receive no service from their agents beyond shopping for coverage, making them ripe for disintermediation.

The risk of disruption

It's understandable why distribution might be primed for disruption, given the expense of approaching prospects and handling clients through an agent and broker network. On the other hand, such frictional costs represent quite a large opportunity for less human-capital-intensive players.

One such disruptor — aggregator websites, which allow consumers to compare prices from a number of carriers — is far from new to the scene, and the concept has endured some bumps in the road recently. Yet in a world where more and more people routinely shop online for many of their products and services, insurance is unlikely to be an exception over the long haul.  This trend could accelerate if direct insurance sales can be facilitated by robo-advisers modeled after the automated investment management services that are looming larger in the retirement-planning space.

Carriers will likely be enhancing their robo-adviser capabilities with rapidly evolving cognitive technologies, including human-computer interface tools such as gestural computing (algorithms interpreting human gestures), affective computing (recognizing and simulating human emotions), as well as augmented reality (duplicating real-world environments in a computer program). This could help make consumers more comfortable working with virtual advisers, and ease the transition to automated insurance advisory systems for a growing number of policyholders.

Insurers also need to contend with the rise of "social brokers," a new type of intermediary that creates affinity groups with similar risk profiles, then negotiates discounted coverage with one or more carriers on their behalf.

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More insurers are starting to market directly to consumers with enhanced technology capabilities, often employing a distribution system parallel to their agency force for consumers who prefer to shop for themselves online. (Photo: iStock)

What should insurers be doing to disrupt themselves?

While emerging distribution options could threaten the viability of insurers that are overly dependent on agents and brokers, they also represent opportunities to drive growth by reaching and servicing customers in new ways. More insurers are starting to market directly to consumers with enhanced technology capabilities, often employing a distribution system parallel to their agency force for consumers who prefer to shop for themselves online. Such hybrid systems are primed for expansion as carriers look to reach prospects over multiple platforms. Look for such direct sales experimentation to accelerate and broaden over the remainder of this decade.

Marketing products through third-party price and value comparison websites is another option for insurers looking to leverage alternative distribution systems—not only to avoid being displaced by more web-savvy competitors, but to target early online adopters while acquiring valuable direct sales experience. Insurers could also adapt by creating more customized, niche products to serve the multitude of affinity groups assembled by social brokers.

To lessen dependence on traditional agents and brokers, carriers may have to simplify their products for direct or group distribution. This sets the stage for a dual distribution strategy, with more customized, complex products being sold through agents, while a streamlined product set is marketed online or through group sellers. 

Given these market disruptions, you might expect the following:

• The number of agents is likely to gradually decline as direct sales grow in personal- and small-commercial lines, and as automated advisory services expand in scope and sophistication, prompting intermediaries to focus on personal and commercial customers with more complex risk-management portfolios, where their expertise and market contacts can add value.

• Insurers will likely partner with new types of distributors and aggregators to learn more about alternative distribution outlets as well as offset the risk of dislocation.

• More carriers will look to have it both ways — testing the waters of new online distribution systems, while bolstering the value and services offered by their agents to retain more complex accounts that don't lend themselves to self-service.

To cope with these existential challenges, insurers and agents alike might try looking through the eyes of non-legacy competitors contemplating the potential to enter the market as a disruptor of the status quo. If they were starting an insurance company or agency from scratch today, how might they attack the friction-adding, unproductive time and cost factors hindering current business models? What might they do to make a "better mousetrap" to capture existing and untapped profit pools?

The alternative, in this volatile environment, could be the disruption or even displacement of many change-resistant insurers and agents by more innovative competitors, unless they break free of their presumptions, take charge of their own destinies, and disrupt themselves first.

Related: Insurers making tough decisions about distribution

Sam J. Friedman ([email protected]) is insurance research leader with Deloitte's Center for Financial Services in New York. Follow Sam on Twitter at @SamOnInsurance, as well as on LinkedIn. These opinions are his own.