The Digital Insurer Reviews the Swiss Re Sigma report on “Digital distribution in insurance: A Quiet Revolution?”

Swiss Re Sigma has recently published an interesting global report on Digital Distribution.

In this article The Digital Insurer reviews the report and takes a look at some of the findings and implications from the perspective of insurance businesses in Asia Pacific. As such it is not intended as a comprehensive review but it is aimed at the reader who wants to understand the key insights from the report within the specific frame of reference of life and health insurance in Asia. The views expressed in this review are those of The Digital Insurer.

Review Coverage

We have split the review in to the following 3 sections:
1. On-line insurance – trends and observations
2. The impact of mobile devices
3. The promise of digital marketing

Section 1: On-line Insurance – trends and observations

In this section we focus on major trends that are discussed in the report.

Trend 1: Changes in customer behaviour

The report highlights how the internet is ‘fundamentally affecting customer behaviour’ at all stages in the value chain. Figure A, from the report, captures succinctly the stages of the sales and post sales process that will be impacted by digital trends.

Figure A: Digital thinking changes all of these processes

Swiss Re report that around 60% of sales are “intermediated” but for life insurance in Asia Pacific this is more than 90%. This difference is significant and has two implications for life insurance in the region:

i. There is significant benefit from applying digital thinking to transform existing “intermediated” channels – namely agency and Bancassurance channels. Digital can both improve quality and reduce costs simultaneously

ii. Unless Asia is different from other parts of the world there is likely to be a growth in direct, presumably digital, channels in the next few years in response to the underlying change in consumer behaviour

The Sigma report summarises the implications as ‘technology-led shifts in distribution which increase transparency, empower customers and lower barriers to entry in some markets, which can lead to further commoditisation of insurance products. Successful insurers in the more price competitive world will be those who can build trusted brands and reputations for good service.’ Whilst we might rightly question the speed at which price competition will become common it is difficult to argue against the strong secular trends identified. As a result the “no change” or “business as usual” strategy is looking particularly risky over the next few years.

Trend 2: Multiple touch points – the cross channel customer journey

Swiss Re have identified how important the new multi-channel, customer centric world is becoming. Figure B below, from the report, is one of the best diagrammatic references to this cross channel customer experience that we have seen

Figure B: The Digital World breaks down thinking based on ‘distribution channel’

This new customer behaviour is challenging for insurers on two key dimensions:

i) Distribution centric models with organisational hierarchies to match are particularly poorly suited for the customer centric approach to business that is now required. Instead of “online’ being a new distribution channel insurers need to grapple with the more complex task of threading digital across all touch points

ii) Very few insurers have the technological backbone of CRM/Case management systems to allow a genuinely integrated 360 degree view of the customer. Operational silos abound – ranging from intermediary activity that is not recorded, call logs maintained for call centre use and marketing outbound activity that is not logged against the customer record for use by sales or customer services

Trend 3: The importance of the internet in the search process

The Swiss Re report has identified that consumers are increasingly researching online. The US data provided for 2012 estimated that 75% of individuals search for auto insurance information and 61% of US consumers researched life and annuity policies.

Figure C from the Swiss Re Report shows how the internet is already the most important source of information in Developed Asia and we can expect to see the same within Emerging Asia soon.

Figure C: Sources of information on financial services – the increasing important of the internet as a source of advice

The implications for face-to-face life insurance models, particularly agency models, in the longer term are:

• It is likely that more leads will be generated from engagement with on-line content than from the relationships of the advisor. This is particularly true for new advisors
• Insurers will need to invest in mechanisms to capture and categorise customers’ on-line interest and route them to the appropriate advisor. Content strategies will become increasingly important
• It will not be long before customers will expect to see advisor profiles on-line and to be given the choice to contact the advisor they are most comfortable with

On the counterside, insurers who fail to invest in providing an engaging on-line experience for customers will struggle to acquire new customers – they simply won’t know that the business has gone to one of their competitors.

In the UK comparison sites are trusted more than financial advisors – and this trend could be set to continue, with some research indicating that online “avatars” are preferred as impartial sources of information on health and financial services matters in the early stages of the search process.

Trend 4: On-line buying habits

Figure D highlights the current position in Asia – high use of insurance agents and banc staff for both life and non-life sales and relatively low use of the internet. No doubt sales via the internet are set to increase as the younger generation become consumers of insurance. However, the measurement of sales by “channel” is set to become more complicated as consumers move to a multi-channel sales experience. It is likely that in the not too distant future someone selling insurance will offer their customer on-line options, video conferencing, co-completion of proposals in additional to face-to-face. So in essence all channels will become “digital”

Figure D: On-line buying habits – channels consumers would use

Section 2: The impact of mobile devices

The Swiss Re report has an excellent section on the impact of mobile devices. Key areas of interest in our opinion are:

1. The promise of mobile telematics: The report estimates that the number of telematics based monitored drivers will be just less than 90 million by 2017. This data provides new ways to price risk – as well as providing data to allow consumers to change their driving behaviour (this site is a great marketing example: http://www.drivelikeagirl.com/) . With the launch of Apple’s iWatch and their stated interest in building a health ecosystem we could well find an acceleration in biometric data capture on mobile devices
2. The device of choice: smartphones have rapidly become the device of choice for consumers and in Asia, emerging markets are expected to have a smartphone majority within 3 years. This surge in connectivity provider insurers with a new “window” to engage with new and prospective customers. Figure E shows the usage of smartphones in insurance in the US. Given the multi-channel nature of sales and service delivery insurers will need to focus on seamless smartphone to call centre / financial advisor service delivery
3. The importance of design to build customer engagement: one of the key success factors in the use of mobile for insurance services will be the optimisation of the experience. Close attention to UI/UX design and the use of gamification techniques will become commonplace – Swiss Re have identified some of the early adopters as Inshared, Progressive, USAA and Friendsurance. Insurers will increasingly recognise the need for agile front-end development capabilities
4. Mobile micro insurance: Mobile devices change the economics for the delivery of small value insurance solutions. We can expect to see a rapid increase in simple products delivered and purchased using pre-paid credits and increasingly mobile wallets

Figure E : Smart phones are multi-purpose

Section 3: The promise of digital marketing

In Figure F we see data that illustrates how much more effective digital marketing is for lead generation with social media, email marketing, SEO and Blogs as the most cost effective lead generation tools. Insurers will likely have to invest considerable time and effort in content based activities designed to firstly drive engagement and subsequently sales opportunities.

Figure F: The power of digital marketing

Concluding remarks – is it really a quiet revolution?

The Digital Insurer believes the digital revolution in Asia Pacific will be profound and will happen faster than most insurers currently expect. Winners in various categories such as best digital agency, best digital Bancassurance and best price aggregator will start to become clearer in the next couple of years. Those insurers who adopt digital thinking to mould their strategies, find the financial and human resources for new initiatives and take a 3-5 year timeline for the full development of new models are the ones that are likely to be successful. Senior executives chained solely to next quarter’s financial results, and incentivised accordingly, are unlikely to be at the vanguard!

Figure F below shows that outside of Asia the majority of incumbent insurers are expecting external competition. Are you willing to bet that Asia will be different?

Figure G: External Competition is coming

Full Report & Video

The full report is available for download – download full report. You may wish to contact David Cook at [email protected]

Swiss Re have also done a 3 minute Digital Distribution 101 video:

Additional reading that you may find of interest:
Big bang digital disruption