Aligning product development with distribution strategy

Market consolidation and greater reliance on third-party distribution continue to provide distributors with greater negotiation strength, leaving insurance carriers with the challenge of assessing the value of those partnerships.

To thrive in this environment, insurance carriers must adopt a dual customer-centric distribution strategy - one that puts policyholders and distributors as customers at the center. One key ingredient to the sales and distribution strategy involves product strategy:

1. What products will be sold in the market.
2. How will they drive toward an overall revenue/growth target.
3. What must be done to ensure profitable, sustainable growth with those sales.

Too often, carriers rely on selling the same product through all sales channels, hoping for success in aggregation. That strategy tends to bear negative fruit.

• Product pricing and compensation is unaligned with distribution channels (e.g., fee-based vs. commission-based sales).
• Higher cost implications associated with a one-size-fits-all strategy (e.g., inefficient marketing spend, higher acquisition costs).
• Misaligned incentives lead to channel conflict, lower sales and even agent churn.
• It assumes similarity in distributors across channels (e.g., registered investment advisory vs. bank), within sales channels and among advisors/agents and their customers.

Ignoring this issue is not an option – although advisors may be contracted with several carriers, the average advisor only places new business with approximately three carriers. Consumers are not much different. When conducting research, consumers will typically only review two or three life/accident carriers, and four or five property/casualty carriers before deciding which product to purchase.

Key implications and challenges

For insurance carriers, that has clear implications and corresponding challenges:

Innovation and alignment

Alignment between strategy, distribution, product and operations is typically difficult to achieve, but there are ways for carriers to innovate.

One option is to reconfigure the carrier’s operating model around target customers and transition away from traditional value chain perspectives. One example is in-plan annuities, where we have seen carriers align the operating model to retirement income. This avoids the pitfalls of cross-functional go-to-market strategies (e.g., resource alignment) and provides a more structured framework to evaluate success.

Carriers should critically evaluate their product development capabilities to 1) bring a product to market, 2) adjust the product to specific distribution and customer needs and 3) measure profitability and success of the product to the carrier. That may mean using new technology (particularly artificial intelligence), data and analytics, or rolling out a new operating model, with potentially in-house and outsourced capabilities.

For example, Bestow uses data sources and predictive models within its AI-driven underwriting system, Apollo, to create risk profiles. These risk profiles could be used to offer life insurance through the direct-to-consumer channel, provide flexibility on pricing based on customer decisioning (e.g., simplified vs. traditional underwriting), and push leads to other distribution channels based on a variety of factors.

Carriers typically view sales distribution as a blunt-force capacity challenge (e.g., a carrier has 20,000 contracted agents to sell its products), instead of seeing distribution as a means to move a specific product to a specific audience. When carriers do this correctly, the results are strong. Aspida Life’s multiyear guaranteed annuity is thriving in the RIA channel in part because of distribution focused designed. Not only has Aspida aligned its compensation structure with the RIA channel (fee-based), but it also made technological and operational decisions on partnerships and processes with RIAs and their customers in mind to reduce integration challenges and streamline annuity sales. The result in 2024 was that Aspida led the RIA channel in MYGA product sales and has positioned itself to grow in 2025 and beyond.

To remain competitive in an evolving market, carriers must rethink their approach to distribution and product development, embracing customer-centric models and leveraging technology to deliver hyper-personalized (i.e., product designed for the agent/customer) solutions to both agents and consumers. As competition increases for market share, less-agile carriers will risk losing not only market share, but paying more for less production, increasing financial strain.

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Chris Taylor is an established leader in the insurance industry with more than a decade of experience supporting insurance strategy and performance improvement outcomes. Contact him at [email protected].