A very cliché statement “Insurance is to be sold, not bought” highlights the eminent role of distribution channels in the growth strategy of insurance firms. The ability to utilize these channels to reach the firms’ target audience is often the key differentiator in a competitive landscape.
However, as new disruptive forces such as evolving customer preferences, maturation of modern technologies, changing regulatory standards and unpredictable global economic conditions become the new norm, the distribution channels of insurance firms must keep up to take on new challenges.
Bancassurance: From Alternative to Mainstream
With lower revenue expected from interest-based activities, banks will be keen to further explore this alternative revenue stream to derive a stable flow of commission income from distributing their insurance partners’ complementing financial solutions.
Supporting this statement, figures from Life Insurance Association (LIA) in Singapore indicate that the popularity of insurance solutions distributed through bank channels is rising. Between January to March 2012, tied agents contributed 42% of weighted new business sales, while the bancassurance channel was almost on par, accounting for 41% of all new sales. [Source: LIA Singapore press release, dated 7 May 2012, http://www.lia.org.sg/node/313]
With most banks entering into exclusive partnerships with insurance firms, bancassurance has matured and progressed as a mainstream distribution channel. However, the challenge would be to ensure a cohesive working relationship between the carrier and the bank. Aside from having a superior range of products, working out the commission structure, embarking on joint marketing promotion and providing dedicated middle office support, insurers need to be bold and creative in using technologies as a leverage to provide a more efficient support to their banking partners.
Similarly, the partnering banks need to be open to new communication links from their insurance partners – this will serve as the service differentiator which fits into the current customer-centricity movement.
Proliferation of Electronic Channels and Consumer’s New Buying Preferences
The changing customer demographic and proliferation in Internet connectivity have led to a shift in customer engagement models, affecting how information is being consumed. The next generation of customer is perfectly comfortable in scouring the Internet, forums and their social networks for advice on insurance solutions, hence leading to the rise of an emerging channel – the online aggregator.
The role of the aggregator fulfills the requirements of the customer, namely pricing transparency, ease of comparison between multiple providers and self-service transactions. While the aggregator provides another channel for insurers to distribute their solutions, it does pose other challenges such as impacting carriers’ branding, and potentially cannibalizing existing distribution channels (an example is the firm’s own e-commerce portal). Both parties - the insurer and the aggregator - also need to work on efficiently integrating data between their IT systems in order to provide real time, updated quotations on the aggregator site.
Striking the Right Balance and Mix
The advent of alterative channels such as the online aggregator is increasingly used to supplement traditional channels such as tied agents, bancassurance, financial advisors and international brokers. Hence, there really is no one-size-fits-all distribution strategy for carriers to address the disruptive conditions; they will need to adapt and harmonize the various distribution channels in order to ensure profitability.
For more insights on how insurance distribution is evolving in the current market environment, join us at the IDC Financial Insights’ Asian Insurance Congress 2012 on the 28th of August in Singapore as we hear from the industry’s leading thought leaders on this topic. Some of the speakers include:
Dr. Owen Young, Group Head, Insurance, Standard Chartered Bank
- Jeffrey Manuel, Head of Asia Bancassurance & Partnership Development, Manulife
- Calvin Foo, Asia Regional Head, Financial Advisory & High Net Worth Development, Manulife
- Douglas Hudson, Chief Partnership Distribution Officer, AIA
- Angie Tay, Operations Director, CompareXpress
For more information on the Asian Insurance Congress 2012, please visit our official website at http://to.idc.asia/aic2012