Changing Dynamics of P&C Distribution Channels October 2013 BLOG POST
Competition in insurance markets is leading to the emergence of additional channels Insurance companies have been using different channels to distribute their products. From the early days of hiring rookies on a part-time basis to today’s captive, exclusive and independent agents, an insurance company has seen a lot of changes in the value chain. Gradually with the commercial insurance market growth, brokers who were not only dealing with insurance companies but also representing customers came into the picture. Today with the development of new technologies, insurance processes have become quite easier and faster. This has presented opportunities for new and alternative distribution channels such as e-mails, internet and social media. Globally, insurers have to tackle the two-fold challenge of improving bottom line and looking for growth under the weak economic environment and protracted low interest rates. This has made the insurers to take the organic growth route to overcome the challenging economic situation and the competitive landscape. Cutthroat competition in the Property and Casualty (P&C) insurance sector has challenged each and every player to check costs and retain the customer base, which has forced players to identify new sales drivers while focusing on cost optimization and maintaining the bottom line.
Distribution as a key priority and changing dynamics‌ Distribution channel is emerging as a key priority for transformation and it can certainly help insurers in efficiency improvement and build on the organic growth agenda. Agents and brokers have been traditionally dominating the P&C distribution channel and have always been the preferred choice of medium in order to seek face-to-face interaction. Today, the dynamics of distribution channels have changed dramatically; and most customers would like to research about products through direct channels and then go for final decision through face to face discussion.
Technology shaking up the P&C insurance distribution model Insurance industry’s IT spent on distribution is estimated in the range of USD4-6 Bn by 2014. This investment is expected to streamline in the field of document processing and sales portals primarily. Technologies such as mobile networking, real-time predictive analytics, and big data potentially offer game changing opportunities and should not be ignored. Technological advancements will impact all players involved in the financial services sector; the property and casualty (P&C) insurance industry will be affected very differently from other financial institutions, reflecting its inherent business and structural differences.
Changing dynamics of P&C distribution channels
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Will intermediaries still be needed? P&C products are more or less commoditized, but this has not affected independent brokers who still sell products of multiple carriers. There has been a lot of debate around disintermediation of brokers and agents with the introduction of new sales channels, opportunities offered by which are not yet lapped up by the insurance industry in a big way. Direct selling has certainly gained some momentum but still has a long way to go to create an impact. With the new generation being technology savvy and has greater acceptance to the new mode of channels, new entrants are better placed to gain from the transition unlike current players who have to get rid of their legacy systems. Advanced IT systems can generally increase cross-selling opportunities. As such P&C insurers do not seem to gain much from these advancements; instead their investment focus should be on strengthening relationship with channel partners. Evolution of the agency channel is both a challenge and an opportunity for property and casualty carriers, who will need to develop new capabilities and new mindsets to thrive in a changing distribution landscape. Fundamental changes in how customers shop for and purchase insurance – and in the very nature of how they view the insurance product – are already altering the distribution landscape in personal and small commercial lines.
Changing dynamics of P&C distribution channels
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