Distribution Strategies in InsuranceUnderstanding the Customer View

The evolution of the insurance sales process however, and the widespread adoption of digital channels in every walk of life, has made insurers sit up and take note. Most now realise that they must interact with their customers – at least to some extent – whenever, however and through whichever channel their customer desires. We have commissioned this research to better understand consumers’ expectations and gauge how well insurers currently measure up.

The survey, based on the responses of more than 2,000 working age adults in the UK, highlights that consumers are becoming more savvy when purchasing their insurance. For example, consumers are almost as likely to prioritise the ease of obtaining a quote (36%) as much as the brand of the insurer (42%). While uptake is still modest, they are also

as likely to use instant messaging or web chats as they are face-to-face meetings (5%) when communicating with their insurer.

The survey cautions against making simplistic assumptions, however. Respondents most comfortable with technology were not the youngest group, as you might expect, but those aged 35-44. In fact, surprisingly, the youngest respondents were most likely to interact face-to-face than any other age group.

A key aspect of the findings is clear: insurers need both compelling traditional and digital channels. It is on the latter, however, that they seem most at risk of falling short. The research found that more than one in three consumers find buying or renewing a policy online “very confusing”.

> Of consumers prioritise the ease of obtaining a quote.

> Of consumers prioritise the brand of the insurer.

> Of consumers use face-to-face meetings when communicating with their insurer.

> Age range of respondents most comfortable with technology.

Executive summary

42%

Insurers are, by their very nature, cautious. As a result, they will often focus more on the risks of new developments as much as the potential opportunities.

We surveyed 2,000 working age adults in the UK

35-44 Years old

36% 5%

DISTRIBUTION STRATEGIES IN INSURANCE

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Most worryingly for insurers, those consumers that are most likely to prefer digital channels are also the segment most likely to agree that insurers don’t measure up. Four out of ten (40%) tech-savvy 35-44 year olds claim that they find insurers’ online efforts confusing.

Consumers are comparing their buying journeys against their other purchasing experiences –more than

half of respondents ranked online marketplaces like Amazon very highly for ease of use, concluding that insurers don’t measure up. Only energy providers’ online offerings ranked lower.

Others are currently left to set the bar when it comes to consumers’ expectations, which only look likely to grow.

Four out of ten (40%) tech-savvy 35-44 year olds claim that they find insurers’ online efforts confusing.

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As such, if the industry doesn’t take action now to ensure their solutions measure up, this survey suggests that insurers could find that buyers are increasingly prepared to look elsewhere.

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1Apple posts the biggest quarterly profit in history, BBC News, 28 January 2015 http://www.bbc.co.uk/news/business-31012410 2See Target’s previous white paper, The 4 Ds of Insurance, for example, http://www.targetgroup.com/pdf/Target-Group-Four-Ds-of-Insurance-whitepaper.pdf 3“Lack of innovation is the biggest complaint that risk managers have about the insurance industry, according to the latest annual poll of Airmic members.” http://www.airmic.com/about/press-releases/innovation-claims-and-compliance-top-risk-manager-insurance-concerns

Consumer habits are changingTo take just one statistic, 1% of the entire world’s population – 74.5 million people – bought an iPhone in the last quarter of 2014, helping Apple to achieve the most profitable quarter in corporate history1.

Whilst increasingly sophisticated technology is now ubiquitous in an increasing number of countries, studies have shown that insurers’ responses to this challenge are, at best, mixed2. A reluctance to innovate is a key criticism levelled by those inside the industry3, both in terms of product design and, crucially, in distribution.

Innovation is not “a natural part of the insurance industry”4, according to one former chair of Airmic, the association for risk and insurance management professionals, and insurers themselves recognise the challenge.

Ultimately, of course, it is the end users’ opinions that count. As such, we have turned its attention to this group in this latest survey. The research has taken a detailed look at insurers’ distribution strategies and whether they are meeting customers’ expectations.

From tackling fraud and automating underwriting information gathering, to modelling risks and claims prevention, big data has potential to profoundly impact the insurance industry. According to Karen Morris, president of the Insurance Innovation Institute in the US, it is

“potentially the most significant digital-era

unparalleled insight into insurance buyers. Properly harnessed, this can drive development of a truly customer-centric organisation.

This, at least, is the aim of the marketing professionals in our survey. Three quarters (74%) expect big data to drive marketing decision-making over the next 5-10

One recent survey showed that 70% of insurance CEOs see technological change and shifting consumer behaviour as key threats to growth – a greater proportion than in almost any other industry5. Addressing it, however, is another issue.

70%

> Sales in China alone were up by 70%.

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DISTRIBUTION STRATEGIES IN INSURANCE

4“Data and understanding client needs are key to innovation”, Commercial Risk Europe, 16 June 2014 http://www.commercialriskeurope.com/cre/3335/63/Data-and-understanding-client-needs-are-key-to-innovation/ 518th Annual Global CEO Survey, Key findings in the insurance sector, PwC, February 2015 http://www.pwc.com/gx/en/ceo-survey/2015/industry/assets/ceo-survey-2015-indepth-analysis-insurance.pdf

From tackling fraud and automating underwriting information gathering, to modelling risks and claims prevention, big data has potential to profoundly impact the insurance industry. According to Karen Morris, president of the Insurance Innovation Institute in the US, it is

“potentially the most significant digital-era

unparalleled insight into insurance buyers. Properly harnessed, this can drive development of a truly customer-centric organisation.

This, at least, is the aim of the marketing professionals in our survey. Three quarters (74%) expect big data to drive marketing decision-making over the next 5-10

The research we commissioned explores four key areas:

Interaction Looking at how consumers research, buy and check details of their insurance policies.

Communication Examining the ways they prefer to communicate with their insurers.

Competition To discover how insurers measure up against other organisations.

Clarity When it comes to getting the information they need.

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What are the most important factors for consumers when considering a new insurance company, policy or renewal? Not surprisingly, price was key, with 80% of respondents naming it amongst the most important factors. This was true across ages and genders, but was particularly so for both younger (18 to 24-year-olds) and older buyers (55 or over), according to 84% and 85% of respondents, respectively. Product features (60%) were seen as the next most important factor, and the brand of the insurer third, with 42% specifying it as key.

Technological change suggests that there is little chance of consumers becoming less demanding when it comes to convenience. By comparison, there is evidence that brand loyalty is in decline, or at least not strong

enough to consistently retain customers6. Capgemini’s study of insurers found that nearly 70% of customers would consider switching provider – mostly as a result of poor customer satisfaction, with less than a third globally saying they had a positive experience with their insurer7.

One positive finding for insurers from Capgemini’s survey was that acquisition expense ratios (a measure of commissions and fees against gross written premiums that reflects the effectiveness of distribution channels) has improved. This, it noted, was likely to be partly down to increased use of lower-cost mobile and internet channels8. Digital channels can also help firms to deliver better customer service – and thus bolster the strength of the brand.

The rule of 3Price, Product, and Brand. What insurers are selling still matters, regardless of how they are selling it.

6 “Customer loyalty seems to be decreasing – the number of survey respondents that said they switched their insurers at least once in the past two years increased from 32.6 percent in 2012 to 36.9 percent in 2013.” Digital reinvention: Trust, transparency and technology in the insurance world of tomorrow, IBM Global Business Services, January 2014, http://www-935.ibm.com/services/multimedia/reinvention_digitale.pdf

DISTRIBUTION STRATEGIES IN INSURANCE

> Of respondents naming price amongst the most important of factors.

> See product features as the next most important factor.

> Specified the brand of the insurer as key. 36% 31%

> In addition, when deciding what’s important to consumers buying insurance, convenience is almost as important as brand, with 36% stating the ease of obtaining a quote and 31% rating the ability to speak to someone easily.

60% 80% 42%

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Newspapers were mentioned by just a handful of respondents – less than 1%. The landline phone however, continues to be significant, and used by 8%. These findings were broadly consistent across genders, but, generational differences were apparent, with more under 25s (10%) opting to interact by phone than any other age group.

When it comes to digital journeys, our survey suggested that most of the traffic continues to come from laptop or desktop computers, accounting for 73% of responses. Smartphones and tablets were significant, but only accounted for around 12% of

consumers, with the breakdown favouring tablets (8% compared with 4%). A notable discovery was that the combined traffic from smartphones and tablets is already greater than from traditional landline phones.

The use of this technology looks set to grow. Smartphone use was highest (9%) among the 35 to 44-year-olds, but the drop-off in the oldest consumers was striking: just 0.45% of the 55 and overs used them. Interestingly, the increase in smartphone use seems to come at the expense of laptops and PCs.

Interaction Something old, mostly new. When it comes to researching, buying or checking policies, our research confirms that consumers overwhelmingly want to do it online.

7World Insurance Report 2014, February 2014, Capgemini and Efma http://www.uk.capgemini.com/resources/world-insurance-report-2014-from-capgemini-and-efma 8World Insurance Report 2014, ibid

1% Newspapers

8% Landline

73% Computers and Laptops

12% Smartphones and tablets

> Of respondents prefer to use the web for these activities.

85%

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9Into the burning building, The Economist, 10 January 2015 http://www.economist.com/news/britain/21638136-aviva-trying-expand-troubled-market-burning-building 10Digital reinvention: Trust, transparency and technology in the insurance world of tomorrow, ibid

The ability to talk to someone is still vital for many consumers, and in many cases that means over the phone. This is the preferred method of communication with insurers for a third of respondents.

Even so, email clearly dominates – with 36% of respondents using it as their preferred method of communication – while another 13% used the insurer’s own quoting site. Interestingly, customers are just as likely to prefer instant messaging as a face-to-face chat (5% in both cases).

Text and social media use remains very limited (less than 1%), but again, the long-term trend is likely to be towards more digital business of all kinds, as the dominant position of email and importance of the price comparison sites shows.

However, traditional channels are not going to disappear any time soon, and firms that neglect them will find themselves unable to serve one or other important demographic. The truth is that consumers don’t want digital services instead of traditional routes; they want both. The trick will be integrating them successfully to provide a seamless experience.

CommunicationThe perfect marriage. Despite the rise of digital channels, traditional methods of communication have far from disappeared.

As an article in The Economist noted: “With customers increasingly footloose and picky (which explains the success of comparethemarket.com and the like) – and with Asia rapidly coming online – a digital champion could make a killing around the world9.”

> 62% of insurers say their organisations still do not have an integrated physical and mobile strategy in place10.

62%

Email Insurers site Instant Messaging Face to face

> Respondents preferred use of communication.

36% 13% 5% 5%

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11“RSA Insurance Group: ‘We want to be the world’s first truly social insurer’”, Computing, 13 January 2015 http://www.computing.co.uk/ctg/news/2389937/rsa-insurance-group-we-want-to-be-the-worlds-first-truly-social-insurer 12“Aviva appoints Andrew Brem as Chief Digital Officer”, 21 August 2014 http://www.aviva.com/media/news/item/aviva-appoints-andrew-brem-as-chief-digital-officer-17338/ 13Transforming Insurance: Securing competitive advantage, KPMG, November 2014 http://www.kpmg.com/Global/en/IssuesAndInsights/ArticlesPublications/transforming-insurance/Documents/insurers-fast-changing-digital-world-v5-fs.pdf

Similar weaknesses in execution were identified when we asked consumers for their views on online interactions. Over a quarter of consumers (28%) agreed or strongly agreed (8%) that checking online with their insurer to research, buy or renew a policy was “very confusing”. This confusion is actually more prevalent among younger buyers. In fact, 18-24 year-olds were more likely to find insurers’ sites confusing (37% and 47%, respectively) than the over 55 or 50s (28% and 41%).

There also seems to be a correlation between consumers’ preferences for digital channels and their disappointment with the offerings insurers put forward. Our research revealed that 35-44 year olds were the most tech savvy and comfortable using smartphones (9%) and tablets (14%) for research, and insurers’ websites for communication (19%). However, this was also the group most likely to agree (33%) or strongly agree (7%) that checking online with their insurance company was confusing.

ClarityFailing to deliver. There are plenty of signs of insurers looking to face up to these challenges. From RSA’s commitment to becoming a “truly social insurer”11 to the “digital transformation”12 underway at Aviva, the ambition is clearly there. And these are more than just words.

35-44 year olds were the most tech savvy, but the group most likely to agree that checking online with their insurance company was confusing.

> KPMG’s survey of insurers found that 69% had a digital strategy beyond a website13.

> With only 37% saying the digital strategy was aligned to their company’s strategic directive.

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> 35-44 year olds mostly used 9% smartphones 14% tablets 19% Insurers’ website.

69% 37%

19% 14% 9%

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Perhaps unsurprisingly, when asked which types of companies they find it easiest to do business with online or via social media, online marketplaces like Amazon were the most popular choice, selected by half of respondents. They are followed by retailers (14%) and travel companies (8%). Financial services groups such as insurers were chosen by only 6%.

This perhaps won’t surprise insurers. One survey suggests that 80% of firms recognise the fact that they trail other industries when it comes to digital services14.

Recognising the problem is not enough to address the risk of disruption, however. Insurers face “dozens of software-based start-ups... attacking market segments they see as ripe for disruption where there are high margins, inefficiencies, unmet customer needs, or new ways to deliver simpler, cheaper, and better services”15. They also face threats from tech giants such as Facebook and Google who are looking to monetise their vast audiences and consumer data. Already, Alibaba, the world’s biggest ecommerce company, has announced investments in two insurers in China16.

CompetitionTech-savvy consumers are judging their purchasing experiences against their other suppliers; insurers simply need to learn from other industries.

14“New opportunities for insurers via social media”, ibid 15“Insurance giants under threat from agile startups, says Forrester”, Techworld, 18 December 2014 http://www.techworld.com/news/startups/insurance-giants-under-threat-from-agile-startups-says-forrester-3591537/ 16“Alibaba seeking stake in insurer New China Life - state paper”, Reuters, 21 January 2014 http://uk.reuters.com/article/2015/01/21/uk-alibaba-group-insurance-idUKKBN0KU03P20150121 17“Insurance Customers Would Consider Buying Insurance from Internet Giants, According to Accenture’s Global Research”, 6 February 2014, Accenture http://newsroom.accenture.com/news/insurance-customers-would-consider-buying-insurance-from-internet-giants-according-to-accentures-global-research.htm

We already know that consumers are prepared to buy insurance from non-traditional providers17, so need to ask how long it will be before Alibaba’s Western equivalents follow suit.

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Online Marketplace were the most popular choice, selected by 1/2 respondents. Followed by retailers (14%), travel companies (8%), financial services groups such as insurers (6%).

14%

6%8%

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As some in the industry have recognised, that doesn’t need to be bad news18, as there are benefits to letting others pioneer technologies if the industry can learn from their mistakes.

However, being late also means that the consumers’ experiences elsewhere now underpin their current expectations – and insurers’ offerings to date are falling short of this measure for many. In fact, those most willing to engage with their insurers online are the group most often disappointed by the experience.

Until recently, insurers have been able to reassure themselves that they were at least keeping pace with their peers19, if not other industries. As Internet start-ups take market share, and tech giants consider their options, that may prove cold comfort. Acquisitions are likely to be part of the answer, and 59% of insurance executives are expecting competitors to buy digital insurance start-ups over the next three years, according to one survey20.

There are no shortcuts, however. Our survey shows that older distribution channels will persist as new digital channels grow and insurers must integrate both successfully to present a compelling proposition across their customer base. Adding new businesses will only add to this challenge.

Insurers need to address their digital offerings now, and also look at where their legacy systems and cultures are creating barriers to success, and where their efforts to date are falling short.

ConclusionThere is little doubt that insurers are coming late to digital channels.

18 See, for instance, Aviva’s digital strategy chief Tristan Brandt’s comments, in April 2014: http://www.marketingmagazine.co.uk/article/1292374/insurers-face-uphill-struggle-engage-mobile-consumers-says-aviva-digital-chief 19“New opportunities for insurers via social media”, ibid 20 The Digital Insurer: Accenture Digital Innovation Survey 2014 http://www.accenture.com/us-en/Pages/insight-insurers-seizing-opportunities-digital-transformation.aspx

> Of insurance executives are expecting competitors to buy digital insurance start- ups over the next three years.

“ The best way to predict the future is to invent it,” computer scientist Alan Kay once said. Insurers are now in danger of losing that chance – or even keeping pace – unless they take action now.

59%

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