Personal Lines Distribution — A Dynamic and Competitive Landscape, article by ValueMomentum

Nov. 28, 2011 - PRLog -- This article was carried out by:
http://personallines.cpcusociety.org/file_depot/0-10000000/0-10000/8113/folder/103905/PersonalLinesSept2011.pdf

‘Insurance Isn’t Bought, It Is Sold’
From insurance carrier-controlled distribution, to agency-controlled distribution to multichannel distribution networks, the personal lines distribution landscape has changed multiple times without finding the perfect elixir yet. Some of the reasons behind this changing landscape include the buying behavior of different demographics (Gen X, Gen Y), new channels of communication (traditional agent offices, Web, mobile, social media), and changing insurance products (pay-as-you-drive, multivariate pricing, etc.). With the prevalent soft market, industry leaders are forced to find new, effective, and cost-efficient ways of delivering their products and associated services to customers.

Carriers are attempting to reach and serve their customers through mobile applications, social networking, etc. The idea is to allow consumers to buy or service their policies instantly, whether through a direct channel or through an agent-enabled process. Technology is being extensively leveraged to drive these goals of insurance carriers.

Commoditizing Personal Lines Distribution While Customizing the Product Offering -
Personal lines have come a long way, not only in how they are offered but also in how they are distributed.  A few decades back, a single product catered to large sections of a population and each policy went through manual underwriting. Insurers are increasingly trying to segment the markets to ensure that the best customers are offered the best rates, while avoiding adverse selection by high-risk customers. How to accomplish this while supporting automated underwriting and issuance is a challenge. Carriers also customize product offering to suit the specific characteristics of customers who patronize emerging channels.

Considering the explosion in the variety of distribution channels and expanding use of online and social network channels, products are being varied by the channel as well as by risk characteristics. For example, a carrier came up with a Travel Insurance Plan specifically for citizens older than 60.

Auto insurance carriers segment customers into preferred, standard and nonstandard segments, and vary coverage, underwriting criteria and rates based on the risk classification. This allows the carrier to vary its products for multiple market segments based on the same base product.

Trending Now
The personal lines insurance business acquisition process is changing across the world in innovative ways. For channels to penetrate the market, carriers are designing pre-underwritten, prepackaged products so that they can be easily sold without the need for an underwriter. A carrier cannot place a product that requires underwriting referral on hubs like social networking sites, mobiles, kiosks, etc. To enable this, a few IT companies are providing underwriter/actuary-controlled product configuration and automated rating tools with rich, business-friendly user interfaces, which help carriers in hastening the placement of such products on these hubs.

Most of these products are now easily sold through automated channels other than agents or brokers. For example, in the Japan market, an individual travel policy is sold while a passenger is on a train for a specific journey. Or, before buying a domestic airline ticket, the user is given the option to purchase insurance for the specific one-way or round trip.

The following trends signal a major change in the distribution landscape:
- Travel insurance terminals at airports, seaports and bus stations.
- Motor insurance kiosks at gas/service stations.
- Health insurance kiosks at hospitals.
- Life insurance kiosks at supermarkets.
- Insurance sold through ATMs.   

In the Sri Lankan market, some carriers sell insurance like a prepaid telephone connection, where a one- or three-month auto policy can be reloaded (i.e., reactivated) by paying an additional premium via a kiosk at a supermarket.

New Entrants in Market
Many insurers are providing mobile applications that allow insurers to conduct basic transactions on their policies on the move. Social networking coupled with mobile is a new entrant that carriers are unable to ignore as customers are quickly switching to this mode of purchasing products.

Telemarketing is another channel that continues to be a prominent distribution channel in many markets, which again uses an online mode for generating leads. China acknowledges telemarketing as a major distribution channel so much that it limits the products that can be sold in this manner and the regions in which they can be sold.

Filipino insurers have pursued a creative business model by persuading telecom companies to bundle sales of mobile phones with special life insurance policies that are easy to understand and have low monthly premium payments. Online channels are becoming critical for carriers. It is important for them to leverage these channels to ensure the faster launch of new products, targeted selling to specific segments, and reach a wider population, all while controlling costs.

Technology Enablers — Product Configuration Platforms, Business Rules Engines and Rating Systems

Automated underwriting — through sophisticated product configuration platforms and rating engines — has reduced human intervention in policy distribution. Today, various carriers are attempting to use offline/real-time versions of a policy admin system via laptops, notepads or mobile phones.

The challenge that online/automated channels face is that a single repository must maintain information on all possible product offerings and variations. This central repository needs to not only maintain the product offerings/variations (e.g., 50 states of U.S. with channel-based variations), but also the underwriting business rules and the rating logic for each separately. The system must provide the flexibility for the business user to configure the system and thus reduce the dependency on IT teams and eliminate translation errors. Such systems must be able to work in online or offline modes, too. These tools allow carriers to simplify their IT systems by maintaining all their products in a central repository. Policy admin systems or point-of-sale systems also become manageable as product configuration/automated underwriting/rating engines take the burden of handling complex logic, which otherwise would have been hard-fixed into the customer facing applications making it difficult and costly for carriers to manage the future. ISO also came up with electronic content for rating; the attempt here is to reduce translation errors and allow carriers to automate uploading new rates through homegrown tools or rating engines.

Human Touch — Agent-Insured Collaboration
Innovation helps in marrying traditional forms of purchasing insurance with the Web. Various carriers are implementing applications or portals that not only do the required automation, but also allow them or their agencies to collaborate with their customers while a customer is attempting to make a purchase. This form of technology involves a live chat, screen-sharing, video conferencing via chat, etc., where a customer is given a tentative quote. Upon a customer’s request, an agent/carrier walks the customer through the product being offered. All of this is done without having to visit an agent/insurance company.
This form of technology bridges the gap that is created by implementing just the central repository, automated product underwriting and rating system. Such a business-technology model allows agents/carriers to meet the customers’ needs while ensuring that the goals of an agency and the carrier are also met.

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ValueMomentum is a global professional services and pre-packaged IT solutions firm assisting Insurance and Financial services.ValueMomentum's iFoundry suite of solutions addresses enterprise needs for managing products, agreements/rates and pricing.