Distribution Strategies in Insurance - Target Insurance

Distribution Strategies in InsuranceUnderstanding the Customer View

However, widespread adoption of digital channels in other industries and every walk of life is leaving them with little option but to try to meet their customers’ demands. Target therefore commissioned this research in order to understand consumers’ expectations better and gauge how well insurers currently measure up.

Taking in the views of more than 3,000 working age adults in the UK and Australia and New Zealand (ANZ), we found that consumers are quite savvy when interacting with this market. UK consumers, for instance, are almost as likely to prioritise the ease of obtaining a quote (36%) as the brand of the insurer (42%), and, while uptake is still modest, are as likely to use instant messaging or web chats as face-to-face meetings (5%) when communicating with their insurer. Overall, 85% in the UK and ANZ use digital channels to research, buy and check details of their insurance policies.

There are, as one might expect, clear generational di�erences. In ANZ in particular, buyers under 25 are much more likely to use smartphones (13%) than the over 50s (1%) to research or buy insurance, and much more likely to use the insurer’s website (27% against 16%) to communicate with their provider.

However, the survey results also caution against simplistic assumptions. In the UK, for instance, the most comfortable with technology were not the youngest group, but those aged 35-44. In both regions, the youngest respondents were also more likely to prefer dealing face-to-face than any other age group. More generally, preferences for more established channels remain widespread. More than half of all those 35 and over in ANZ, for example, still prefer to use the phone to communicate with their insurer.

> Of UK consumers prioritise the ease of obtaining a quote.

> Of UK consumers prioritise the brand of the insurer.

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

> Of consumers in UK and ANZ use digital channels to research, buy and check details of their insurance policies.

Executive summary

42%

Insurers are, perhaps rightly, cautious of innovation. As a result, they often tend to focus on the risks of new developments as much as the opportunities.

We surveyed more than 3,000 working age adults in the UK and Australia and New Zealand (ANZ)

36% 5% 85%

DISTRIBUTION STRATEGIES IN INSURANCE

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As such, one thing 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 survey fi nds that more than one in three consumers in the UK – and 40% in ANZ agree that researching, buying or renewing a policy online is “very confusing”.

Worse still, those consumers who are most likely to prefer digital channels are also the most likely to agree that insurers don’t measure up. Almost half (47%) of the under 25s in ANZ fi nd insurers’ online e� orts confusing – and 40% of the tech-savvy 35-44 year olds in the UK say the same.

Consumers know what good practice looks like; online market places like Amazon, for example, rank highly for ease of use (particularly in the UK, where they are named by half of all respondents). Unfortunately, many buyers have concluded that insurers don’t measure up. In both the UK and ANZ, only energy providers’ online o� erings rank lower.

Whatever the reason, insurers’ caution in adopting digital channels has left others to set the bar when it comes to consumers’ expectations, which only look likely to grow.

More than one in three consumers in the UK – and 40% in ANZ – agree that researching, buying or renewing a policy online is “very confusing”.

Buyers under 25 are much more likely to use smartphones (13%) than the over 50s (1%) to research or buy insurance.

40%13%

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

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1http://dazeinfo.com/2014/01/23/smartphone-users-growth-mobile-internet-2014-2017/ 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

Consumers are changing fastBy 2015 it is predicted that 83% of internet usage will come from mobiles and there will be 2 Billion smart phone users 1.

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 buyers’ opinions that count. As such, Target has turned its attention to this group in this latest survey, which seeks to understand how mature insurers’ digital distribution strategies are and whether they are meeting customers’ expectations. Questioning more than 3,000 working age adults in the UK, Australia and New Zealand about their experiences, we asked about their behaviour and experiences – both before they buy and beyond.

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

2bn

> 2 Billion smart phone users by 2015.

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.

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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 fi ndings 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:

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

CommunicationExamining the ways the consumers prefer to communicate with their insurers.

CompetitionTo discover how insurers measure up against other organisations.

ClarityWhen it comes to getting the information they need.

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By comparison, direct mail was named by only 2% in the UK, and 3% in ANZ. Newspapers were mentioned by just a handful – less than 1% in both cases. Only the landline phone continues to be significant as an alternative, used by 8% in both regions.

These findings were broadly consistent across ages and genders, although younger buyers in ANZ were less likely to use the phone or direct mail (1% in both cases) compared to older buyers (50+) (13% and 4%, respectively). In the UK, however, generational differences were less clear-cut, with more under 25s (10%) opting to interact by phone than the other age groups.

When it comes to digital routes, most of the traffic continues to come from laptop or desktop computers, accounting for 73% of preferences in the UK. This number drops to 57% for ANZ, but is likely to be higher if those naming blogs and comparison sites

as their preference (17%) are using a PC to access them.

Smartphones and tablets were less popular, but still account for more than one in ten consumers in both the UK and ANZ –11% in ANZ and 12% in the UK – with the breakdown favouring tablets (6% against 5% for smartphones in ANZ, and 8% against 4% in the UK). It’s also notable that in both regions the combined traffic from smartphones and tablets is already greater than from landline phones.

Unlike landline traffic, the use of this technology is also likely to grow. As such, insurers need to have mobile aligned channels that provide pertinent information that reflects the device format and limitations.

The Accenture Interactive 2014 CMO Insights Survey6 highlights this fact. The findings highlight the fact that CMOs are taking advantage of digital channels, but also show that there is

still much work to be done in this area – starting with a shift to embrace the full omni-channel customer experience.

This is most obvious in ANZ, where use of smartphones is at 13% in the under 25s – compared with just 1% in the over 50s. In the UK, smartphone use was highest (9%) among the 35-44 year olds, but again the drop-off in the oldest consumers was striking: just 0.45% of the 55 and overs used them. Interestingly, in both the UK and ANZ, the increase in smartphone use seems to come at the expense of laptops and PCs. As a result, organisations not only need to ensure they have an effective website, but also that their digital offerings cater to the increasing range of devices used. They must examine how well their digital distribution channels adapt to the limitations and opportunities inherent in the different devices used.

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

6CMO Insights 2014, http://www.accenture.com/us-en/Pages/insight-cmo-digital-transformation-summary.aspx#research

> In both the UK and ANZ, 85% of buyers prefer to use the web.

85%

2% UK 3% ANZ Direct Mail

73% UK 57% ANZ Computers and Laptops

12% UK 11% ANZ Smartphones and tablets

8% Landline


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7 Into the burning building, The Economist, 10 January 2015 http://www.economist.com/news/britain/21638136-aviva-trying-expand-troubled-market-burning-building 8 Digital reinvention: Trust, transparency and technology in the insurance world of tomorrow, ibid

The ability to talk to someone is still vital for many buyers, and in many cases that means over the phone. This is the preferred method of communication with insurers for 47% of ANZ consumers and a third of British buyers.

Older buyers in ANZ were significantly more likely to want to use the phone (52%) than the youngest age range (36%). Most of the remainder in ANZ preferred email or the insurer’s website (19% in both cases). Use of instant messaging or webchats – just 3% overall – was, again much more popular among the 18-24 year olds (5%) than the 50+ age group (1%). The wealthy ($100k+ annual income) were also more likely to use email, webchats and insurers’ web pages than less well o� customers.

In the UK, generational di�erences were less clear cut, but email clearly dominates – with 36% using it as their preferred method of communication – while another 13% used the insurer’s own quoting site. Interestingly, UK 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 in both regions (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.

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 world7.”

Traditional channels are not going to disappear any time soon, however, and insurers that neglect them will find themselves unable to serve one or other important demographic. More than half of the 35 and overs in ANZ, for example, still prefer to use the phone. The truth is that consumers don’t want digital services instead of traditional routes; they want both. The trick will be integrating them successfully.

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

> 62% of insurers say their organisations still do not have an integrated physical and mobile strategy in place8.

62%

Email Phone Insurers site Instant Messaging

36% 19% 13% 19% 5% 3%33% 47%

UK ANZ

> Respondents preferred use of communication.

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9 “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 10“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/ 11Transforming 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

KPMG’s survey of insurers found that 69% had a digital strategy beyond a website11. However, the same survey also showed only 37% saying the digital strategy was aligned to their company’s strategic directive.

Similar weaknesses in execution were identified when we asked consumers for their views on online interactions with their insurer. More than one in four consumers in the UK agreed (28%) or strongly agreed (8%) that checking online with their insurance company to research, buy or renew a policy was “very confusing”. In ANZ this rose to 40% (with 31% agreeing and 9% agreeing strongly that this was the case).

This confusion is actually more prevalent among younger buyers. In fact, in both the UK and ANZ, 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’ preference for digital channels and their disappointment with the o�erings insurers put forward. In ANZ it is the youngest group that are most likely to use smartphones, tablets and other digital channels for getting information about insurance (with just 3% naming o�line media), and most likely (27%) to use the online quoting page of their insurer’s website when communicating with them. However, almost half find insurers’ online o�erings confusing.

By comparison, in our UK sample, the 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.

ClarityConsumers are confused and not fully engaged. There are plenty of signs of insurers looking to face up to these challenges. From the UK’s RSA’s commitment to becoming a “truly social insurer”9 to the “digital transformation”10 underway at Aviva, the ambition is clearly there. And these are more than just words.

> In both the UK and ANZ, 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%).

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

37% 28% 41%

19% 14% 9%

UK ANZ

47%


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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 are the most popular choice, selected by half of consumers in the UK and 27% in ANZ. They are followed by retailers (14%) and travel companies (8%) in the UK. Financial services groups which include banks, financial services and insurers were chosen by only 6%.

In ANZ, this sector fared slightly better. Travel companies ranked second (17%) and retailers and financial services companies were both named by 15%. As in the UK, however, only energy providers (4% in the UK and 5% ANZ) ranked lower. 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 services12.

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”13. They also face threats from tech giants such as Facebook and Google, with the latter already poised to enter the auto insurance market in the US14. Already, Alibaba, the world’s biggest ecommerce company, has announced investments in two insurers in China15.

CompetitionThese tech-savvy consumers are not impossible to please; insurers would be wise to learn from other industries.

12 “New opportunities for insurers via social media”, ibid 13“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/ 14“Google Poised to Enter U.S. Auto Insurance Market: Report”, 9 January 2015, Insurance Journal http://www.insurancejournal.com/news/national/2015/01/09/353593.htm 15“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 16“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 providers16, so need to ask how long it will be before Alibaba’s Western equivalents follow suit.

14% 15% 8% 17% 6% 15%

Retail Travel Financial

UK ANZ

> Types of companies found easiest to do business with online or via social media.

> Online marketplaces like Amazon are the most popular choice, selected by half of consumers in the UK and 27% in ANZ.

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Obviously, what insurers are selling still matters, regardless of how they are selling it. This is made clear in the findings of the survey.

We looked at the most important factors for consumers when considering a new insurance company, policy or renewal. Not surprisingly, price was key, with 80% in the UK naming it as among the most important determinants of their choice. That was true across ages and genders, but was particularly so for younger (18-24 year olds) and older buyers (55 or over), with 84% and 85%, respectively, naming it. Product features (60%) were seen as the next most important factor, and the brand of the insurer third, with 42% naming it.

The pattern is replicated across regions, as well as when consumers are asked to pick only the most important factor. In Australia and New Zealand (ANZ), buyers were asked to choose just one factor, and again price (41%), features (25%) and brand (17%) were the top three.

A number of points should be noted, however. First, when weighing what’s important to them when buying insurance, convenience is almost as important as brand to UK buyers, with 36% naming the ease of obtaining a quote and 31% the ability to speak to someone easily as key issues. When asked for just the single most important factor, more than one in ten (13%) of ANZ respondents opted for one of these two as their top consideration.

Second, these figures are unlikely to be static. The speed that technology is bringing to other areas of people’s lives means 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 retain customers17. 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 insurer18.

These issues are not mutually exclusive, however. Price, not to mention brand, is at least partly a function of which distribution and communication channels are used, and whether they are being deployed successfully.

Indeed, one positive finding from Capgemini’s survey was that acquisition expense ratios (a measure of commissions and fees against gross written premiums that reflects the e�ectiveness of distribution channels) had improved. This, it noted, was likely to be partly down to increased use of lower-cost mobile and internet channels19.

Moreover, digital channels can also help firms to deliver better customer service – and thus bolster the strength of the brand. However, these channels cannot remain static; content needs to be reviewed regularly – and changed as necessary – to ensure relevancy to those engaging with them.

Shifting fundamentalsPrice, brand and convenience. At the outset, it is important not to overstate the importance of the distribution channel used – including the more traditional channels.

17 “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 18World Insurance Report 2014, February 2014, Capgemini and Efma http://www.uk.capgemini.com/resources/world-insurance-report-2014-from-capgemini-and-efma 19World Insurance Report 2014, ibid


25% 41% 17% 31% 36%

> Of consumers named price amongst the most important of factors.

> Of consumers see product features as the next most important factor.

> Of consumers specified the brand of the insurer as key.

> Convenience is as important as brand to UK buyers. 36% named the ease of obtaining a quote 31% named the ability to speak to someone easily.

UK ANZ

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As some in the industry have recognised, that doesn’t need to be bad news20, 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. If buyers are confused by digital offerings, they are clearly less likely to have the confidence to buy. Insurers therefore need to gear

their offerings for these channels, both by providing clear messages and communications, but also by providing simple products that are suitable for online sales. In short, they need to rethink and design products with digital in mind; simply putting a “web window” on its existing lines is unlikely to be a recipe for success.

Until recently, insurers have been able to reassure themselves that they were at least keeping pace with their peers21, 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 survey22.

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, 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.

20See, 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 21“New opportunities for insurers via social media”, ibid 22The Digital Insurer: Accenture Digital Innovation Survey 2014 http://www.accenture.com/us-en/Pages/insight-insurers-seizing-opportunities-digital-transformation.aspx

“ 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.”

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