Disrupting P&C insurance distribution models
Insurers are facing compelling reasons to expand distribution beyond the tried and true channels.
A great deal of activity is underway by insurers investigating or implementing new distribution channels. For every line of business across property & casualty (P&C) insurance, there are compelling reasons to expand distribution beyond the tried and true channels. This is not to say that agent/broker channels or the direct distribution models are less important or going away. It is more about reaching new segments, addressing new customer expectations, and meeting customers at their point of need.
There are two important dimensions to the strategies for this area: 1) determining the right mix of channels for each company, and 2) managing those channels, including any related channel conflict.
Determining the right mix of channels
Depending on how you count it, there are at least eight different models for distribution in P&C, and variations within each of those. There are the models most in use today: captive agents, independent agents and brokers, MGAs, and in some segments, the direct model (call center/web). Then there are those that have been around for a while but are experiencing a new surge in interest, such as selling through affinity groups or bundling insurance with the product to be insured. Even worksite marketing, which has been primarily the province of voluntary benefits and life/health, is an option for P&C distribution.
Now, introduce some of the new digital age models like the creation of a new digital brand or selling through emerging ecosystems like smart homes or connected vehicles. And, of course, there are many new InsurTech distribution players now in the mix, either in the form of digital agents or MGAs, new digital brands, or new affinity or ecosystem partnerships. As with many strategy options in the digital age, there is no shortage of choices. More than ever, the key is to take an outside-in view to identify more discrete customer segments, the risks unique to those segments, and the best channel to reach those customers with products that serve their needs.
Managing channels
Some insurers will stick with one primary channel and work to strengthen the relationships and the technology capabilities supporting that channel. However, many are expanding by offering new channel options.
When this occurs, there is often an issue of channel conflict, especially when an agent channel has been the primary channel. This is nothing new — insurers have been dealing with this since the early days of the internet when it became apparent that new distribution models would emerge. However, our findings in a newly released research report, “P&C Distribution R(evolution): Blending Old and New Models,” indicate that the agent/broker community, in general, now accepts the notion of multi-channel distribution. It does not necessarily mean that they are happy about it, but most understand it is the reality of the P&C world today. The key for insurers is finding the right approach to differentiation.
The future of distribution
We expect a more varied mix of distribution channels for P&C in the future. There will likely be all manner of channels. As connected world ecosystems continue to evolve around property, vehicles, farms, and other areas, the paths to the customer will expand. New technologies are likely to increase exposures in some areas (such as cyber) and introduce new, unexpected risks that need insurance coverage. And yes, in the midst of all this change, there will still be agents and brokers playing a key role in insurance distribution in the future.
Mark Breading (mmbreading@strategymeetsaction.com) is a partner at Strategy Meets Action (SMA), a strategic advisory firm working with traditional insurers and InsurTech solution providers to manage unprecedented industry change. The opinions expressed here are the author’s own.
This column was first published on SMA’s blog and is republished here with consent from SMA.
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