Distribution has grown to represent a significant portion of life insurers’ total economic value, but there are questions about their distribution models’ sustainability. Given that, it’s high time for firms to break free from decades of limited innovation.
That’s the thesis of a new joint report from the Boston Consulting Group (BCG) and Morgan Stanley titled Reinventing Life Insurance Agency Distribution Globally. It draws from interviews with over 50 senior insurance executives; a survey of hundreds of agents in China, India, Germany, and the US; and a proprietary financial model showing interactions among the in-force book of business, new business, and agency economics.
“We believe insurers that approach the problem holistically will unlock significant value,” said Tim Calvert, a BCG partner and co-author of the report. “Agents will remain key to insurance distribution, but we expect their role to continue to evolve over time."
While human-to-human interaction will remain critical to insurance distribution, the report said, agents will see their roles change with data and predictive analytics, customer behaviours, regulations, disruptive players from adjacent industries, and continually rising competitive pressures.
The paper focused on four foundational elements on transformation, starting with the reinvigoration of the agency. The agency force in many locations is aging, and recruiting the next generation of talent is a persistent problem. For instance, data from LIMRA indicates that the average age of agents in the US is 56, while only 4% of millennials are interested in a career in insurance.
Aside from improving their agent “life cycle” management — recruitment, onboarding, and retention — insurers must segment their agents based on performance and maximize their potential. Individual agent compensation should also increase to motivate high performers and attract new talent, with the increases based on improved productivity.
Another important element was to revamp solutions. Insurers’ traditional focus on agents as their primary customers has led to overly complex products that do not resonate with clients. To move on from products that are “sold not bought,” the report said, firms have to design simpler, more customer-centric solutions that the average customer can understand and connect to their own needs. The report also called for agents to be trained to address evolving needs around health, wealth, and wellness with newly developed offerings that provide holistic solutions.
Driving efficiencies was another key point. Raising productivity, the report argued, will require investments in digital and advanced analytic capabilities to provide agents with qualified leads that have a high propensity to buy coverage. Applying such tools to the in-force book can also help carriers, which have deep resources compared to other distribution partners, identify often untapped leads.
“Automation and artificial intelligence will be critical to driving efficiencies and making the underwriting process simpler, faster, and less invasive, thus reducing overall costs,” the report said.
Finally, it urged investors and insurance executives to isolate the economics of the in-force book, new business, and distribution to determine where value is being created or destroyed. “Too often, they find unwelcome surprises, such as new business being written at a loss in order to sustain the in-force book and distribution structures,” the report said, noting that the problem is most prevalent in mature markets.