How Insurance Can Prepare For The Next Distribution Model: McKinsey

As the COVID-19 crisis evolves, it will continue to affect insurance distribution around the world. Insurers can prepare by building a strategy focused on near- and long-term implications.

By Simon Kaesler, Matt Leo, Shannon Varney, and Kaitlyn Young

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Chicago, IL (June 12, 2020) – The COVID-19 pandemic is profoundly affecting how people engage with one another across industries and geographies. Physical distancing and other quarantine measures have shifted activities once considered critical to have in person to digital and remote channels. This change will affect insurance distribution—both in the near term, as physical distancing measures continue, and in the longer term. Indeed, society’s relationship with technology and remote interactions is continuously evolving and accelerating as we move toward the “next normal.”

Many insurance companies have likely already taken steps to address short-term or immediate impacts of COVID-19—moving employees to a remote setup and expanding online customer service channels. Now, insurers are focused on the next set of challenges, including how to reimagine distribution in a more remote world. An April 2020 survey of German insurance agents (conducted four weeks into lockdown) found that about half of the agents saw a more than 40 percent decrease in new business. And a May 2020 survey of US agents found a similar effect: almost 50 percent of agents cited remotely building new customer relationships as the biggest challenge during COVID-19. Meanwhile, online insurance aggregators and direct channels are reporting similar, if not greater, volume.

To address these challenges, insurers will need to rethink their distribution model across three dimensions: customers, sales force, and enablers (such as investment in data and digital tools). Doing so will empower them to prepare for the unpredictable.

How distribution is changing

Physical sales forces and intermediaries are responsible for the majority of insurance distribution across geographies and lines of business. While the share of business conducted via these channels has been shifting during the past decade as some customers migrate online, they remain the primary channels across life, commercial, and personal lines property and casualty.

But continued physical distancing is having dramatic and immediate impacts on insurance distribution.

Shifting to digital tools. Agents accustomed to in-person interactions are rapidly recalibrating to provide uninterrupted service to clients who may be facing severe health or economic challenges. These agents are also rethinking how they build relationships with prospective clients as most rely on in-person meetings. In our January 2020 US agent survey, about 90 percent of life insurance agents’ sales conversations and nearly 70 percent of their ongoing client conversations were conducted in person. In a follow-up survey in May, less than 5 percent of agents had any in-person conversations. A late-April 2020 survey of European insurance executives found that some 89 percent of respondents expect significant acceleration in digitization, and most also anticipate further shift in channel mix. The COVID-19 pandemic has increased customers’, agents’, and insurers’ desire for comfort around digital- and remote-interaction models and tools.

Moving toward self-service. Client demand for self-service in the current environment has only accelerated the importance of digital. A recent consumer survey in Spain found digital access in insurance has increased almost 30 percent since the pandemic began. But the same survey also found the level of customer satisfaction with digital delivery in insurance was the lowest compared with all other sectors. The number one reason for dissatisfaction was “hard-to-use tools.” Thus, insurers will need to invest in expanding and improving self-service tools to better support customer and agent satisfaction.

Transitioning offline processes online. Agents are currently navigating legacy products that sometimes require offline execution, such as physical signatures and medical underwriting. Our January 2020 US agent survey results show that almost 50 percent of agents were dissatisfied with the level and function of signature capabilities at their primary carrier. Many customers, meanwhile, currently do not want to engage in a physical medical-underwriting process for fear of contagion. Insurers must then rapidly find ways of digitally underwriting the business—such as making better use of external data, relying on statements of good health, and adjusting fluidless thresholds to expand the number of customers who can forgo a physical medical exam—or risk losing it.

The goal is to return the business to scale fast, especially as knock-on effects of the virus become clear.
McKinsey report

For more on changing distribution strategy in the near term, and planning for the longer term, read the full report on McKinsey’s website.

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SOURCE: McKinsey

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