All Roads Lead to Digital: Aligning Distribution Channel Transformation to Achieve Value and Growth

Imagine you are the Director of Transportation for one of the 50 states. The DOT budget has placed you in a tight spot. At least 50% of your roads and bridges are in need of an upgrade, but you also need to create 1,200 miles of new road for your transportation infrastructure to keep up with population growth. Some crucial bridges are 60 years old. A few are over 100 years old. There aren’t spare parts to repair some of them. No one on your staff remembers how the oldest structures were built and retirees didn’t leave instructions. For the new roads, you have better technologies and new materials. You wish you had the resources to rebuild everything.

Welcome to the insurance IT dilemma for distribution systems. Most insurers are just getting by with patching up old distribution systems while they attempt to build out new core systems for new products and services. They prioritize based on immediate need. They plan with the knowledge that much of their budget will be poured into the maintenance of systems that support traditional processes and current business. At the same time, their traditional distribution channels are clamoring for something new and new customers are demanding new channel options. Their demands are shifting faster than IT priorities. Most Insurance IT teams are in a tight spot.

Growth and retention are a top priority for all insurers, regardless of segment or product focus

Growth is focused on developing innovative new products and services, addressing new risks that have emerged, entering new markets, expanding into new channels, and seeking ways to adapt to the changing demographics and lifestyles of buyers – both consumers and Small Business Owners (SMB).

Retention is multi-faceted. Not only do insurers need to retain current policyholders; they must retain the best of the brokers and agents who bring a large slice of business. Fostering healthy distribution channels has grown complex. Traditional processes and products might no longer meet market demands and traditional channel technology won’t either. Insurers should rapidly adapt to the changing marketplace by assessing their distribution strategy and go to market efforts to ensure solutions address the entire distribution value chain and the growing diversity of channels.

How do insurers align all of their channels behind a cohesive strategy for digital transformation?

There is an existing incremental process that yields business benefits as it builds toward a complete and modern digital distribution infrastructure. Last week, Majesco and PwC outlined these transformative steps in a joint thought-leadership report, Distribution Management: Connecting the Dots to Build Future Market Success. The report, based on research and roundtable feedback from industry leaders, gives a detailed case for updating distribution technologies. You’ll also read about a proven methodology that helps move the organization from reactive chaos to predictive anticipation of customer needs with analytics and AI. In today’s blog, we take a brief look at common hurdles to channel transformation and preliminary considerations that your organization needs to align those channels.

Rough roads for insurers who don’t meet market demands

Growth without engaged customers and distribution channels is challenging.  An emerging new ecosystem of players who are threatening traditional market assumptions is surfacing.  At a macro level, the key market trends driving change include customers, technology/innovation, and distribution channels.

Preparation opens new routes for customer travel

Customers impact every channel. The next set of insurance buyers is here today with high expectations for multi-channel and digital engagement.  At the same time, other buyers have accelerated their expectation of a wider array of channels and the adoption of digital. The result…insurers must quickly update their distribution strategy, channels, and technology, or risk being left behind in a state of irrelevance.

As customer needs change and products evolve, an insurer’s distribution management solution should align with these changes to meet potential growth opportunities. This enables distribution partners to grow without fear of misalignment in compliance, commission payments, and payment information.  The ease in which a distribution management solution can align with their distribution partners’ growth efforts should assist with capturing a broader customer segment.

A multi-channel model inclusive of the traditional agent and other digital distribution channels will likely provide a better customer journey and experience.

Digital technology foundations add much-needed flexibility

As the insurance industry accelerates its digital transformation, technology is an increasingly important element to optimize operations and engage externally with distribution channels.  Different channels have different needs. The traditional main street agent has different needs than a large broker, who has different needs from an aggregator, Managing General Agent (MGA), exchange or platform, embedded channel, or other digital channels. Insurers should create new distribution strategies to capitalize on trends and implement cutting-edge business processes that can strengthen their operations as well as expand and enhance distributor and channel relationships.

A new technology foundation can drive innovation to meet new customer expectations and distribution channel options.  It can meet agent expectations for more digital capabilities that provide a different and better way of doing business while creating an ease of doing business.

Trends in digital engagement create need for distribution change

During the last two years of the pandemic, social distancing protocols and prolonged lockdowns accelerated the digitalization and expansion of distribution channels.  Insurers have increasingly adopted digital technologies to meet new customer and agent expectations for engagement.  While agents remain valuable and critical to the insurance ecosystem due to the trust placed in them by customers, customers are expecting a broader array of channels that meet them on their terms, when, and where they need insurance.

In this changing and competitive marketplace, improving distribution is critical to growth.

Agent-insurer interactions: A new map for great relationships

Distribution is rapidly evolving and impacting channel strategy and management.  Agents and brokers remain dominant.  But a growing number of insurers are examining how they engage with agents and brokers to fight for “shelf space” within agent and broker businesses.

At the same time, newer agents are entering the business with an expanded set of expectations, particularly for digital capabilities.  Their first impression with insurers is during the onboarding process, which will set the tone for the relationship. These new digital-first agents want capabilities that accelerate the process and make it easy for them to do business. Self-service capabilities across the business process, as well as access to the information they need to manage their business, become crucial to the agent-insurer relationship.  Insurers meeting these expectations get the best “shelf space.”

Leading insurers are moving to next-gen distribution management platforms that offer a broader set of capabilities and can provide access to onboarding and commission reporting, and much more.  Distribution management is critical in their ability to rapidly address distribution partners’ needs and make it easy to do business with them.

Embedded insurance: Different road —same destination

Embedded insurance trades brand awareness for point-of-purchase accessibility. In the embedded approach, the insurer receives in-the-moment top-of-mind awareness because the offering is placed directly in the path of purchase of another product or service…at the right time and in the right place.  The strategy works equally well for well-known brands and new startups alike.

“Embedded insurance is the new strategy word. There is going to be excessive competition for this area.  Companies that do it best and produce results…will be the ones to win out.”

–Roundtable Participant

Embedded insurance is among the newest options, and numerous interesting examples of partnerships between insurers and other industries are popping up on this end of the spectrum. Insurance can be “soft” embedded, offered as an opt-in option during the purchase of another item; “hard” embedded, included as an opt-out option with the purchase of another item; or “invisible,” included in the purchase of another product without the option to remove it (e.g., bumper-to-bumper warranty with a new car).  The benefit for insurers is that it expands market reach.

More importantly, there is a major benefit for customers. Many customers find the traditional insurance process to be difficult, lacking transparency, complex, and time-consuming. Embedded insurance can answer these issues with near-effortless experiences.

Paving the way to Distribution Management transformation

Distribution management transformations are difficult and vastly different from other core transformations. They are dependent on the maturity and robustness of key inputs and structures of other systems. For example, to execute an effective transformation, the following key areas need to be well established: agent/agency onboarding, license and appointments, compliance checks, distribution, commission calculations, agent/agency payments, and back-end accounting.

However, a distribution management transformation that is executed effectively can provide dividends. These transformations present opportunities to add value to an organization through three key dimensions: improved productivity and distributor experience; increased operational efficiency and effectiveness; and improved ability to adapt to change. A successful transformation will lead to noticeable positive change for business units, the technology organization, and distributor relationships. Before beginning, it helps to internally assess:

Institutional Knowledge
Commitment and Alignment from Leadership
Legacy Compensation Rules

Institutional Knowledge

Many times, only a select few long-tenured employees have the experience and know-how to provide reliable service or access relevant data and information in a timely manner. This issue becomes compounded when documenting key processes, data sources, and documents coupled with manual or legacy systems. It can also result in a “key employee” risk.  These employees, like others within insurers, may look to change jobs or retire and take the institutional knowledge with them.  This presents significant operational risk to the organization.

For an insurer to determine if they are ready for a transformation, from an institutional knowledge standpoint, the following questions should be asked:

Are rules, guidelines, and calculations clearly defined and represented?
Are any processes missing from the insurer’s current distribution management system or viewed as “magic” from the current software vendors or internal insurer system?
Is there enough day-to-day employee representation to provide enough information to clearly articulate a streamlined distribution management system process?
Which employees are key, and are proper backups in place while key employees are assisting in a distribution management transformation?
Is the process of intake, compliance, processing, and output clearly defined with upstream and downstream impacts?

Having a clear understanding and next steps detailed will help an insurer determine if their organization is ready for a distribution management transformation.

Commitment and Alignment from Leadership

The key question leadership needs to ask is, why is a distribution management transformation required?

Unlike core transformations, distribution transformations require multiple areas of input and multiple areas of output, resulting in potentially a greater effort and large organizational impact. There should be commitment and alignment on the vision of what constitutes success for such a transformation, with alignment from all stakeholders from different organizational business units and shared services. This includes alignment and agreement of the maturity of the company’s current distribution functionalities.

Distribution channel alignment — front end, back end and data management

When it comes to Distribution Management transformation, the big picture counts. Incremental transformation is okay and expected, but piecemeal transformation won’t provide the same value as a well-designed plan for upgrading all aspects of a distribution’s foundation. For example, as an organization walks through the steps of transformation, it will quickly approach the phase where data can add game-changing capabilities to agencies, direct sales, embedded products and partner networks.

What won’t work is for an insurer to design a data architecture in a random fashion. It is more effective and efficient if the right framework for data is considered at the outset and implemented in an aligned manner that will fit the use cases of all distribution channels.

Is your organization ready for distribution’s changing future? Are you ready to expand channels, improve agency relationships and meet the customer at those points where your products are needed? Find out more about the steps of distribution maturity and what it takes to create an environment that is always ready for what’s ahead. Be sure to download Distribution Management: Connecting the Dots to Build Future Market Success today.