By Annette King & Jenny Sutton
In the nineteenth and twentieth centuries, door-to-door salesmen were the primary distribution channel for most products and services – peddlers carried their wares in tin carriers or piled in a wagon. Housewives (usually) answered the unsolicited knock at the door, and bought new and innovative products from agents commissioned by the wholesaler or manufacturer. Insurance was sold this way too. With the rise of transportation, and migration to towns and cities, buyers found it more convenient to go to the store and select, from a retailer with a greater range of options, the goods and household appliances. Technology drove the further evolution of consumer sales to online shopping and self-checkouts in brick and mortar stores. And the recently announced Amazon Go stores have no checkout at all!
In contrast, the distribution model for insurance has evolved very little over this period, retaining its emphasis on personal solicitation with rehearsed sales pitches by commission-paid agents and volume incentivised bankers. Despite the associated cost, the inability to scale and the trust issues engendered, this model dominates in Asia.
No other aspect of the insurance value chain exhibits such a large mismatch between what insurers provide and what clients want than distribution.
Cost of sales model prohibits access
The “insurance is sold and not bought” assumption, while sustaining the product push mentality of insurance sales channels, also carries a more sinister message – insurance is available by invitation only. Insurance is an exclusive club and only certain people are invited to join.
A personal sales model is suitable for some clients, but too expensive for most people.
Up front commission is a big factor contributing to the customer acquisition cost. But so are the number of hours that an advisor needs to dedicate to one sale to address compliance requirements and to convince the client to buy, as well as the non-productive time they spend on prospecting and administrative tasks.
While there are segments for which a personal advice and sales approach are appropriate, the associated economics means that the needs and buying preferences of only a fraction of the total population who need insurance are being met.
In Asia today, insurance is unaffordable for most entry level clients. Half of Asia’s population has no access to life and health insurance. A more cost-effective and inclusive way of reaching and serving the insurance needs Asia’s emerging middle class is required.
Scalability constraints prevent reach
With a distribution model that is based on feet-on-the-street, there is a limit to how many clients can be reached, despite the almost uniform initiatives to increase sales productivity across agent, broker and bancassurance channels. Growing the sales force itself is problematic. Existing distributors leave as fast as new ones are recruited. Training and licencing new distributors to give quality advice involves time and cost. Annual efforts to improve agent retention have borne little fruit. Yet insurers continue to invest vast sums in attempts to improve these channels, despite the diminishing returns and the finite limits of each distributor’s network and potential client base.
These channels will never grow to reach the 1.5 billion emerging middle class people of Asia – the segment for whom insurance makes the vital difference between falling back into poverty or achieving their aspirations.
Current distribution models are just not client centric
In deciding which sales channels to deploy, insurers need to be more client-centric. The large population of Asia encompasses many different beliefs, education backgrounds, preferences and needs. Being client-centric involves making options available to clients that are aligned with their individual circumstances – including options about how they engage with insurers. And organising those touchpoints around the customer to deliver the omni-channel experience that clients expect – allowing them to transition seamlessly between online and off-line touchpoints.
With the economic changes brought about by Industrialisation, the Information Age and now the Digital Age, economic power has progressively shifted into the hands of the consumers. Literally. In the form of their smartphones.
These very smartphones are the key to addressing the access and scalability issues that current insurance distribution models face. Yet few insurers have recognised and responded to this opportunity. Engagement tools, products, underwriting, claims and services continue to be designed and delivered based on an in-person sales model. This is despite the massive shift to digital engagement that has occurred in every other industry. And which is expected by most clients. Insurers are missing the client centricity point when it comes to distribution – different economic and behavioural preference segments require different distribution models.
Digital from start to finish
In 2015, 64% of all in-store and in-person sales were influenced by the internet. In June 2016, Asia had 1.8 billion internet users, the highest of any geographic region in the world – three times that of Europe and nearly six times that of North America. In 2015, USD594 billion was spent online in APAC countries with double digit growth rates forecast to continue. And yet less than 1% of life insurance is transacted online. This is going to change.
Online aggregators, particularly in the general insurance industry, allow clients to accurately compare prices and policies across insurers. In time it is expected that all but the most complicated personal property insurance will be transacted online.
Although the life insurance industry yet to move online in a significant way, clients are ready to engage online. Regulatory barriers to selling insurance online will fall – the Monetary Authority of Singapore recently stated their goal of allowing all life insurance product types to be sold online without advice.
A new generation of digital tools, robo-advisors, financial modellers, quote engines and calculators will allow clients to assess their own needs.
Digital channels for well-informed clients across all segments to buy simple protection and more complex products are not just a possibility – they are realities: BIMA in South East Asia for micro-insurance and soon Ladderlife in the US. It is only a matter of time before similar digital capabilities are available to Asian consumers. The question is whether it is existing insurers that will do so.
Distributors to advisors – better qualified, and more focused
Personal advisors will only be for more complex cases – where health, geography and more sophisticated financial objectives require expert advice.
For the financial well-being of these people, an advisor who is better qualified than a fresh graduate who recently passed a multiple choice insurance exam is needed. A progression over time from advising on simple to more complex needs, under the apprenticeship of a seasoned advisor is one approach to evolve from distributors to advisors, making financial advisory services the profession it aspires to be.
With the democratisation of information, visits to doctors are now “second opinions” – the patient having already self-diagnosed with the help of Dr. Google. Similarly, insurance clients want to self-educate – identifying the type and amount of insurance cover they need so that they have the confidence and knowledge to control the conversation and buying journey. A new generation of advisors will be required to meet these raised expectations.
For straightforward products, the primary reason for clients to meet with an advisor will be to dispel the trust issues they have with insurers. Insurance clients want a relationship manager, not a salesperson.
Conclusion
According to SwissRe the mortality protection gap in Asia is USD58 trillion. This represents a significant opportunity for insurance growth in Asia. But insurers’ current distribution models are unlikely to be able to tap into this market given their cost and scalability constraints, and their inability to meet clients’ digital and omni-channel expectations. You can be sure that if existing insurers’ distribution channels don’t reach these customers, new entrants will!
Originally Published in Asia Insurance Review 1 Jan 2017
