Distribution Strategies in Understanding the Customer View DISTRIBUTION STRATEGIES IN INSURANCE

Executive Insurers are, by their very nature, cautious. As a result, they will often focus more on the risks of summary new developments as much as the potential opportunities.

The evolution of the insurance as likely to use instant messaging or sales process however, and the web chats as they are face-to-face widespread adoption of digital meetings (5%) when communicating channels in every walk of life, has with their insurer. made insurers sit up and take note. Most now realise that they must The survey cautions against making interact with their customers – at simplistic assumptions, however. least to some extent – whenever, Respondents most comfortable with however and through whichever technology were not the youngest channel their customer desires. We group, as you might expect, but have commissioned this research those aged 35-44. In fact, surprisingly, to better understand consumers’ the youngest respondents were most expectations and gauge how well likely to interact face-to-face than any insurers currently measure up. other age group.

The survey, based on the responses A key aspect of the findings is clear: of more than 2,000 working age insurers need both compelling adults in the UK, highlights that traditional and digital channels. It consumers are becoming more savvy is on the latter, however, that they when purchasing their insurance. seem most at risk of falling short. The For example, consumers are almost research found that more than one in as likely to prioritise the ease of three consumers find buying or obtaining a quote (36%) as much as renewing a policy online “very the brand of the insurer (42%). While confusing”. uptake is still modest, they are also

We surveyed 2,000 working age adults in the UK

36% 42% 5% 35-44 Years old

> Of consumers prioritise > Of consumers prioritise > Of consumers use > Age range of respondents the ease of obtaining a the brand of the insurer. face-to-face meetings most comfortable with quote. when communicating technology. with their insurer.

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Four out of ten (40%) 4 tech-savvy 35-44 year 10 olds claim that they find insurers’ online efforts confusing.

Most worryingly for insurers, those half of respondents ranked online consumers that are most likely to marketplaces like Amazon very As such, if the industry prefer digital channels are also the highly for ease of use, concluding doesn’t take action now segment most likely to agree that that insurers don’t measure up. Only insurers don’t measure up. Four out energy providers’ online offerings to ensure their solutions of ten (40%) tech-savvy 35-44 year ranked lower. measure up, this survey olds claim that they find insurers’ suggests that insurers online efforts confusing. Others are currently left to set the bar when it comes to consumers’ could find that buyers are Consumers are comparing their expectations, which only look likely increasingly prepared to buying journeys against their other to grow. look elsewhere. purchasing experiences –more than

3 DISTRIBUTION STRATEGIES IN INSURANCE

Consumer habits are changing To take just one statistic, 1% of the entire world’s population – 74.5 million people – bought an iPhone in the last quarter of 2014, helping Apple to achieve the most profitable quarter in corporate history1.

> Sales in China alone were up by 70%.

70%

Whilst increasingly sophisticated Ultimately, of course, it is the end technology is now ubiquitous in an One recent survey showed users’ opinions that count. As such, increasing number of countries, that 70% of insurance we have turned its attention to this studies have shown that insurers’ group in this latest survey. The responses to this challenge are, CEOs see technological research has taken a detailed look at best, mixed2. A reluctance to change and shifting at insurers’ distribution strategies innovate is a key criticism levelled Frconsumerom tackling fraud and behaviour automating as and whether they are meeting 3 underwriting information gathering, unparalleled insight into insurance by those inside the industry , both to modelling risks and claims buyers. Properly harnescustomers’sed, this can expectations. in terms of product design and, prkeyevention, threats big data has topotential growth drive de– avelopment of a truly to profoundly impact the insurance customer-centric organisation. crucially, in distribution. industrgreatery. According proportion to Karen than in This, at least, is the aim of the Morris, president of the Insurance marketing pr5ofessionals in our Innovationalmost Institute any in the other US, it is industry . Innovation is not “a natural part of survey. Three quarters (74%) expect big data to drive marketing 4 “pAddressingotentially the most it, however, is the insurance industry” , according decision-making over the next 5-10 to one former chair of Airmic, the signifianothercant digital-era issue. association for risk and insurance management professionals, and insurers themselves recognise the challenge.

1Apple posts the biggest quarterly profit in history, BBC News, 28 January 2015 http://www.bbc.co.uk/news/business-31012410 2See Target’s previous white paper, The 4 Ds of Insurance, for example, http://www.targetgroup.com/pdf/Target-Group-Four-Ds-of-Insurance-whitepaper.pdf 3“Lack of innovation is the biggest complaint that risk managers have about the insurance industry, according to the latest annual poll of Airmic members.” http:// www.airmic.com/about/press-releases/innovation-claims-and-compliance-top-risk-manager-insurance-concerns 4 www.targetgroup.com

The research we commissioned explores four key areas:

Interaction Clarity Looking at how consumers When it comes to getting the research, buy and check details information they need. of their insurance policies.

Communication Competition Examining the ways they prefer to To discover how insurers communicate with their insurers. measure up against other organisations.

From tackling fraud and automating underwriting information gathering, unparalleled insight into insurance to modelling risks and claims buyers. Properly harnessed, this can prevention, big data has potential drive development of a truly to profoundly impact the insurance customer-centric organisation. industry. According to Karen This, at least, is the aim of the Morris, president of the Insurance marketing professionals in our Innovation Institute in the US, it is survey. Three quarters (74%) “potentially the most expect big data to drive marketing decision-making over the next 5-10 significant digital-era

4“Data and understanding client needs are key to innovation”, Commercial Risk Europe, 16 June 2014 http://www.commercialriskeurope.com/cre/3335/63/ Data-and-understanding-client-needs-are-key-to-innovation/ 518th Annual Global CEO Survey, Key findings in the insurance sector, PwC, February 2015 http://www.pwc.com/gx/en/ceo-survey/2015/industry/assets/ceo-survey-2015-indepth-analysis-insurance.pdf

5 DISTRIBUTION STRATEGIES IN INSURANCE

The rule of 3 Price, Product, and Brand. What insurers are selling still matters, regardless of how they are selling it.

80% 60% 42%

> Of respondents naming > See product features as > Specified the brand price amongst the most the next most important of the insurer as key. 36% 31% important of factors. factor.

What are the most important factors enough to consistently retain > In addition, when for consumers when considering a customers6. Capgemini’s study of deciding what’s important new insurance company, policy or insurers found that nearly 70% of to consumers buying renewal? Not surprisingly, price was customers would consider switching insurance, convenience key, with 80% of respondents naming provider – mostly as a result of poor is almost as important as it amongst the most important customer satisfaction, with less than brand, with 36% stating factors. This was true across ages and a third globally saying they had a the ease of obtaining a genders, but was particularly so for positive experience with their insurer7. quote and 31% rating both younger (18 to 24-year-olds) the ability to speak to and older buyers (55 or over), One positive finding for insurers someone easily. according to 84% and 85% of from Capgemini’s survey was that respondents, respectively. Product acquisition expense ratios (a measure features (60%) were seen as the next of commissions and fees against most important factor, and the brand gross written premiums that reflects of the insurer third, with 42% the effectiveness of distribution specifying it as key. channels) has improved. This, it noted, was likely to be partly down to Technological change suggests that increased use of lower-cost mobile there is little chance of consumers and internet channels8. Digital becoming less demanding when it channels can also help firms to deliver comes to convenience. By comparison, better customer service – and thus there is evidence that brand loyalty is bolster the strength of the brand. in decline, or at least not strong

6 “Customer loyalty seems to be decreasing – the number of survey respondents that said they switched their insurers at least once in the past two years increased from 32.6 percent in 2012 to 36.9 percent in 2013.” Digital reinvention: Trust, transparency and technology in the insurance world of tomorrow, IBM Global Business Services, January 2014, http://www-935.ibm.com/services/multimedia/reinvention_digitale.pdf

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Interaction Something old, mostly new. When it comes to researching, buying or checking policies, our research confirms that consumers overwhelmingly want to do it online.

85%

> Of respondents prefer to use the web for these activities.

Newspapers were mentioned by just consumers, with the breakdown 1% a handful of respondents – less than favouring tablets (8% compared with Newspapers 1%. The landline phone however, 4%). A notable discovery was that the continues to be significant, and used combined traffic from smartphones by 8%. These findings were broadly and tablets is already greater than consistent across genders, but, from traditional landline phones. 8% generational differences were Landline apparent, with more under 25s (10%) The use of this technology looks set opting to interact by phone than any to grow. Smartphone use was highest other age group. (9%) among the 35 to 44-year-olds, but the drop-off in the oldest 73% When it comes to digital journeys, our consumers was striking: just 0.45% Computers survey suggested that most of the of the 55 and overs used them. and Laptops traffic continues to come from laptop Interestingly, the increase in or desktop computers, accounting smartphone use seems to come at for 73% of responses. Smartphones the expense of laptops and PCs. 12% and tablets were significant, but only Smartphones accounted for around 12% of and tablets

7World Insurance Report 2014, February 2014, Capgemini and Efma http://www.uk.capgemini.com/resources/world-insurance-report-2014-from- capgemini-and-efma 8World Insurance Report 2014, ibid

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Communication The perfect marriage. Despite the rise of digital channels, traditional methods of communication have far from disappeared.

> Respondents preferred use of communication.

36% 13% 5% 5%

Email Insurers site Instant Messaging Face to face

The ability to talk to someone is still vital for many consumers, and in As an article in noted: “With customers many cases that means over the increasingly footloose and picky (which explains the phone. This is the preferred method of communication with insurers for success of comparethemarket.com and the like) – and a third of respondents. with Asia rapidly coming online – a digital champion could make a killing around the world9.” Even so, email clearly dominates – with 36% of respondents using it as their preferred method of communication – while another 13% used the insurer’s own quoting site. Interestingly, customers are just as However, traditional channels are not > 62% of insurers likely to prefer instant messaging as a going to disappear any time soon, say their face-to-face chat (5% in both cases). and firms that neglect them will find organisations themselves unable to serve one or still do not have Text and social media use remains other important demographic. The 62% an integrated very limited (less than 1%), but again, truth is that consumers don’t want physical and the long-term trend is likely to be digital services instead of traditional mobile strategy towards more digital business of all routes; they want both. The trick will in place10. kinds, as the dominant position of be integrating them successfully to email and importance of the price provide a seamless experience. comparison sites shows.

9Into the burning building, The Economist, 10 January 2015 http://www.economist.com/news/britain/21638136-aviva-trying-expand-troubled-market- burning-building 10Digital reinvention: Trust, transparency and technology in the insurance world of tomorrow, ibid

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Clarity Failing to deliver. There are plenty of signs of insurers looking to face up to these challenges. From RSA’s commitment to becoming a “truly social insurer”11 to the “digital transformation”12 underway at , the ambition is clearly there. And these are more than just words.

2 1 69%3 37%4

> KPMG’s survey of insurers found > With only 37% saying the digital that 69% had a digital strategy strategy was aligned to their beyond a website13. company’s strategic directive.

Similar weaknesses in execution were There also seems to be a correlation identified when we asked consumers between consumers’ preferences for their views on online interactions. for digital channels and their Over a quarter of consumers (28%) disappointment with the offerings agreed or strongly agreed (8%) that insurers put forward. Our research checking online with their insurer to revealed that 35-44 year olds were 19% 14% 9% research, buy or renew a policy was the most tech savvy and comfortable “very confusing”. This confusion is using smartphones (9%) and tablets actually more prevalent among (14%) for research, and insurers’ > 35-44 year younger buyers. In fact, 18-24 websites for communication (19%). olds mostly used year-olds were more likely to find However, this was also the group most 9% smartphones insurers’ sites confusing (37% and likely to agree (33%) or strongly agree 14% tablets 47%, respectively) than the over 55 (7%) that checking online with their 19% Insurers’ or 50s (28% and 41%). insurance company was confusing. website.

35-44 year olds were the most tech savvy, but the group most likely to agree that checking online with their insurance company was confusing.

11“RSA Insurance Group: ‘We want to be the world’s first truly social insurer’”, Computing, 13 January 2015 http://www.computing.co.uk/ctg/news/2389937/ rsa-insurance-group-we-want-to-be-the-worlds-first-truly-social-insurer 12“Aviva appoints Andrew Brem as Chief Digital Officer”, 21 August 2014 http://www.aviva. com/media/news/item/aviva-appoints-andrew-brem-as-chief-digital-officer-17338/ 13Transforming Insurance: Securing competitive advantage, KPMG, November 2014 http://www.kpmg.com/Global/en/IssuesAndInsights/ArticlesPublications/transforming-insurance/Documents/insurers-fast-changing-digital-world-v5-fs.pdf 9 DISTRIBUTION STRATEGIES IN INSURANCE

Competition Tech-savvy consumers are judging their purchasing experiences against their other suppliers; insurers simply need to learn from other industries.

1 2

Online Marketplace were the most popular choice, selected by 1/2 respondents. Followed by retailers (14%), travel 14% companies (8%), 8% financial services groups such as 6% insurers (6%).

Perhaps unsurprisingly, when Recognising the problem is not asked which types of companies enough to address the risk of We already know that they find it easiest to do business disruption, however. Insurers face consumers are prepared to with online or via social media, “dozens of software-based start- online marketplaces like Amazon ups... attacking market segments buy insurance from non- were the most popular choice, they see as ripe for disruption where traditional providers17, so selected by half of respondents. there are high margins, inefficiencies, need to ask how long it will They are followed by retailers (14%) unmet customer needs, or new ways and travel companies (8%). Financial to deliver simpler, cheaper, and be before Alibaba’s Western services groups such as insurers better services”15. They also face equivalents follow suit. were chosen by only 6%. threats from tech giants such as Facebook and Google who are This perhaps won’t surprise looking to monetise their vast insurers. One survey suggests that audiences and consumer data. 80% of firms recognise the fact that Already, Alibaba, the world’s they trail other industries when it biggest ecommerce company, comes to digital services14. has announced investments in two insurers in China16.

14“New opportunities for insurers via social media”, ibid 15“Insurance giants under threat from agile startups, says Forrester”, Techworld, 18 December 2014 http://www.techworld.com/news/startups/insurance-giants-under-threat-from-agile-startups-says-forrester-3591537/ 16“Alibaba seeking stake in insurer New China Life - state paper”, Reuters, 21 January 2014 http://uk.reuters.com/article/2015/01/21/uk-alibaba-group-insurance-idUKKBN0KU03P20150121 17“Insurance Customers Would Consider Buying Insurance from Internet Giants, According to Accenture’s Global Research”, 6 February 2014, Accenture http://newsroom. accenture.com/news/insurance-customers-would-consider-buying-insurance-from-internet-giants-according-to-accentures-global-research.htm

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Conclusion There is little doubt that insurers are coming late to digital channels.

“The best way to predict the future is to invent it,” > Of insurance executives computer scientist Alan are expecting Kay once said. Insurers are competitors to now in danger of losing buy digital insurance start- that chance – or even 59% ups over the next keeping pace – unless three years. they take action now.

As some in the industry have Until recently, insurers have been There are no shortcuts, however. recognised, that doesn’t need to be able to reassure themselves that Our survey shows that older bad news18, as there are benefits to they were at least keeping pace with distribution channels will persist letting others pioneer technologies their peers19, if not other industries. as new digital channels grow and if the industry can learn from their As Internet start-ups take market insurers must integrate both mistakes. share, and tech giants consider their successfully to present a compelling options, that may prove cold proposition across their customer However, being late also means comfort. Acquisitions are likely to be base. Adding new businesses will that the consumers’ experiences part of the answer, and 59% of only add to this challenge. elsewhere now underpin their current insurance executives are expecting expectations – and insurers’ offerings competitors to buy digital insurance Insurers need to address their to date are falling short of this start-ups over the next three years, digital offerings now, and also look measure for many. In fact, those most according to one survey20. at where their legacy systems and willing to engage with their insurers cultures are creating barriers to online are the group most often success, and where their efforts to disappointed by the experience. date are falling short.

18 See, for instance, Aviva’s digital strategy chief Tristan Brandt’s comments, in April 2014: http://www.marketingmagazine.co.uk/article/1292374/insurers- face-uphill-struggle-engage-mobile-consumers-says-aviva-digital-chief 19“New opportunities for insurers via social media”, ibid 20 The Digital Insurer: Accenture Digital Innovation Survey 2014 http://www.accenture.com/us-en/Pages/insight-insurers-seizing-opportunities-digital-transformation.aspx

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