Partnership Potential

TowerGroup estimates that in 2005 insurers will spend approximately 16 percent of their development budgets to improve and streamline the distribution process. Distribution costs affect their profits. To realize the highest value from distribution, insurers must improve operations and agent-based support for key distribution segments. This includes enhanced operations to support a multiproduct, multichannel distribution model. Insurers can realize the highest value from their producers by developing an integrated suite of services oriented to driving sales and reducing servicing costs.

Partnerships with distributors can expand an insurer's reach. It is imperative, however, to build loyalty with profitable partners. Insurers that identify "partnering" as a core skill can manifest long-term competitive advantage.

Successful manufacturer/distribution partnerships typically incorporate the following characteristics:

- Commitment from both entities to build a profitable business model with fair and equitable revenue-sharing arrangements.

- Shared goals and objectives with mutual support, respect and cultural compatibility.

- Alignment of products and services to brand and customer demographics.

- Performance monitoring to include sales and marketing and customer service-level agreements.

- Timely and accurate dissemination of business information to manage financial and business risks.

For insurers to increase the profitability of their interactions with distributors and their customers, they must approach distribution with a flexible and cost-effective technology solution. Insurers support complicated distribution processes and must continuously plan, manage, evaluate and adjust support and services to accommodate demands from their partners. Support for distribution from a flexible and cost-effective technology environment allows insurers the leeway to readily adopt new channels and adjust services without creating a profit margin imbalance.

A number of technology options are available today for insurers to develop flexible and cost-effective multichannel distribution networks. These solutions manifest in portals and CRM systems for sales, marketing and service, among other functions. However, a major impediment to realizing the full benefit of these solutions is the lack of available data from core operating systems. Insurers with open access to this data can achieve the following goals:

- Establish a comprehensive view of the joint customers of the producer and the insurer.

- Gain economies of scale from a common set of data.

- Lower operational costs in distribution with lower-cost channels.

- Lessen agents' administrative tasks to maximize sales activity.

- Provide analytical support for the producer and customer life cycle.

- Track distribution activity and establish performance metrics.

It is imperative that insurers address their architecture issues so that they can improve distribution capabilities and drive distribution costs down. Insurers can mitigate distribution expenses by employing technology to cost-effectively align them with their distributors and shared customers in areas such as sales, new business, claims processing, underwriting and service. Expanding distribution capabilities so that it is easier to manage a multiproduct, multichannel distribution environment will give rise to competitive differentiation with high-value distributors. Deriving economic value from distribution requires a three-pronged approach:

- Development of well-defined business objectives.

- A flexible architecture to integrate back-office data stores with front-end applications.

- Financial guidelines to manage strategic partnerships.

Collaborative capabilities in information, operations, sales and marketing, and performance tracking can establish distinct distribution advantages over competitors. Successful insurers will realize the highest value from their distribution channels by focusing on distribution as an asset and a core part of the business.

Cynthia Saccocia is a research director in the insurance practice at TowerGroup.