One of the top agenda items at most insurance carriers is how to drive more premium revenue. In order to achieve this goal, executives should evaluate three approaches: 1) expand the product line; 2) build new distribution channels; or 3) optimize the current distribution channels. There has been a significant focus on "speed to market" programs to reduce the cycle time in bringing new products to market, but more attention should be paid to building new distribution channels and optimizing existing channels. The goal of this discussion is to assist you in evaluating your organization's performance against the four principal challenges of distribution management affecting carriers today:
1. The ability to attract and retain good producers.
2. Determining the best strategy for distribution.
3. Reducing the cost of distribution.
4. Channel rationalization.
The ability to attract and retain good producers
Attracting and retaining good producers is fundamental to driving efficiency. Unfortunately, few carriers have shown much aptitude in this regard -- only one out of four producers are still with the same carrier after four years. Producers choose carriers based on ease of doing business. The number one reason a producer will choose a carrier is the new business and underwriting support process; second is marketing and sales support; and third is underwriting speed. The lesson that carriers should draw from these preferences is that product pricing and commissions are not the only variables that affect producer loyalty. The companies that have invested in new processes and technology to redesign and automate the application through the underwriting process have seen an increase in producer retention, as well as the level of premiums. The ability to integrate the producer sales tools into a unified Agent portal environment also has led to increased productivity and retention. Good producers will continue to evaluate carriers for ease of doing business for the next 18 months.
Determining the best strategy for distribution
Developing a strategy for new distribution has been a matter of constant discussion at the senior levels of most insurance organizations. The greatest growth is seen in the independent channel -- 23 percent growth (agents and brokers); followed by the affiliated channel (captive agents) -- 17 percent; and then the direct channel -- 10 percent. Carriers have been experimenting with aligning products that fit within each of these channels and then working to achieve efficiencies to maximize growth. To do this successfully, carriers must have the ability to perform profitability analysis by channel and segmentation analysis by both customer and channel. Building these analytical models will allow the organization to align the right products with the right channels. The hypothesis of true alignment, "the right product at the right time for the right customer," is reinforced by the growth of the independent channel. Independent producers and brokers are concerned not so much about with which carrier they do business, but rather how much value they can bring to their customers -- a true customer-centric value proposition.
Reducing the cost of Distribution
Carriers' distribution costs are extremely high because most of the distribution channels' functions are outside of the insurer's enterprise. Duplicate business process functions and technology solution sets drive these cost. To reduce them, organizations have focused on consolidation of business functions and technology, e.g., automation of key processes from new business through underwriting and claims. In addition, standards, such as Accord XML, have helped provide the platform for two-way data flow between the carrier and its distribution channels. Most organizations that have adopted this standard and have opened the architecture of their technology suite have been able to streamline the information flow for their distribution channels and achieve economies of scale.
Insurers also must understand needs specific to their organization's particular business and distribution models, so that gathering and evaluating information on business achievement and customer experiences can drive continuous improvement. At the home-office level, this means a clear understanding of producer and customer needs. Improving the company's competitive position with producers and customers reduces customer support costs, reduces technology operations costs and targets and prioritizes technology investments.
Channel rationalization is synonymous with the ease of doing business. Ease of doing business requires that distribution channels be integrated into one comprehensive customer experience across all touch points -- producer, broker, call center and Web. A cohesive channel strategy reduces the need for complex, voluminous and arcane information, and customized dynamic interfaces to core processes. Just as importantly, it reduces cycle time by creating a straight-through processing of non-exception business, automated data collection, underwriting and decision processing. It also results in channel transparency, which allows for access to information, products and services -- regardless of sales channel alignment -- as well as provides cross-channel insight, which sets in motion cross-selling, product bundling and consistently delivered integrated information (including account information and customer data). Overall, this facilitates more effective selling and servicing of prospects and customers, as well as more efficient cross-selling and campaign management. And, by creating easy access to information and services contained within the enterprise, carriers also will improve customer satisfaction, retention and overall premium growth and profitability.
Distribution management in the insurance industry is a complex topic inviting rich debate. Carriers face tough choices about where and on what to place investment dollars, but one thing is certain: The future growth of the industry will depend on shifting from a product focus to a customer-centric view geared to the better reaching and retaining of customers. Put simply, this means carriers must put customers at the heart of the business, making it possible for customers to have access to them anywhere, anytime and through any channel, and to direct the right services to the right producer and policy owner segments.
David Holtzman is an independent consultant with nearly 20 years of management and consulting experience in the financial services and insurance industries.
His focus is working with senior management in the areas of strategy articulation, distribution management - producer and third-party, new business and underwriting operational effectiveness, business process management for claims and policy administration and risk management solutions. He can be reached at 215-680-0805 or by email at [email protected].