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Embedded Insurance: The Next Distribution Channel

The insurance sector has a rich legacy. One of the first insurance companies was founded at the end of the 17th century. Present-day AVIVA still traces its origins to it.

Over the centuries, risk management has become more precise, claims management faster, and premiums more competitive.

But one element has remained constant — heavy reliance on agents for insurance distribution.

Today, the US insurance sector employs over 440,000 advisors. China has some 8 million agents in the life insurance sector alone, while the EU market has over 815,000 intermediaries, including brokers, agents, bancassurance, and others.

On the surface, that’s a strong distribution network driving the industry forward.

But in practice, distribution is often the weakest link in the insurance value chain.

Why the insurance sector needs digital distribution channels

With agents and branches being the focal point for distribution, it’s not surprising that in-person sales dominate in the insurance sector.

Embedded Insurance: The Next Distribution Channel

Source: McKinsey — 2020 Global Insurance Pools Statistics and Trends: Distribution

Then the rocky 2020 came and things took a U-turn. A survey of US life insurance agents found that in January 2020, 90% of sales conversations and 70% of ongoing client conversations happened in person.

By May 2020, both of these figures had dropped to less than 5%.

Similar dynamics took place in other geographic markets and across insurance products. Though the numbers have somewhat improved in 2022, the pandemic revealed two major issues in the insurance sector:

  • Low salesforce efficiency
  • Overlooked changes in customer behavior

Operating a large network of agents, branches, brokers, and partners means little control over customer service quality and sales efficiency. Most insurers have sales quotas per agent and/or branch. But few can estimate the volume of missed sales opportunities.

Shopping for insurance is a chore for most people — and even more so for younger connected consumers. That’s literally what some of them tell us on Twitter:

Embedded Insurance: The Next Distribution Channel

Source: Twitter

The sentiment is even less peachy when it comes to going to the branch, where the wait times can be long, the agents mildly engaged, and the insurance software way too slow for the 21st century.

Between 2013 and 2017, the average insurance company lost $27 million in potential profit per year due to a series of factors, including low workforce productivity. Labor productivity is painstakingly low because most business processes are largely manual and paper-based.

Many insurers have also overlooked wider changes in consumer purchasing behaviors. Even prior to the pandemic, a number of steps on the insurance customer journey happened online — and resulted in direct engagement.

Embedded Insurance: The Next Distribution Channel

Source: McKinsey — 2020 Global Insurance Pools Statistics and Trends: Distribution

An even larger segment of customer journeys is set to permanently migrate online onward. A 2022 SwissRe consumer survey notes that across all markets, 48% of consumers purchased policies via an insurer’s app or website, while 45% did so with an agent or broker. Another 27% favored non-traditional distributors, including InsurTech companies and adjacent businesses.

2022 J.D. Power study also found that consumers are happier when digital purchase options are available but get frustrated if the online buying experience isn’t great:

The average satisfaction score among the top-performing 25% of respondents using a mobile app is 885—significantly higher than any other channel. However, satisfaction with the bottom 25% of respondents using a mobile app falls 358 points to 527.

Pre-pandemic, insurers failed to act on these shifts in consumer behavior. This gave growth momentum for InsurTech players — specifically, companies specializing in digital insurance product distribution.

In 2021, InsurTechs focused on distribution and accounted for nearly 55% of all deal activity, a 7% increase from the prior quarter.



Read more here.

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