Life insurers globally face multiple challenges and among the most critical is the sustainability of their agency distribution models.
After decades of limited innovation, distribution is on the cusp of major change, which will unlock benefits for all stakeholders, according to a joint research report from Boston Consulting Group (BCG) and Morgan Stanley Research, Reinventing Life Insurance Agency Distribution Globally.
This report draws on more than 50 interviews with senior insurance executives; a survey of 850 agents in China, India, Germany, and the United States; and detailed proprietary financial modeling. It envisions a hybrid agency model in which agents, empowered by technology, are embedded in multichannel, and multisolution ecosystems focused on addressing customers' holistic needs across their lifetimes.
Tim Calvert, a BCG partner and co-author of the report, says this transformation involves many challenges. Reinvigorating the agency requires significant amounts of innovation and investment in new capabilities to boost overall effectiveness, but agents have historically been resistant to change. "We believe insurers that approach the problem holistically will unlock significant value. Agents will remain key to insurance distribution, but we expect their role to continue to evolve over time."
Nathalia Bellizia, a BCG principal and co-author of the report, adds that all stakeholders stand to benefit from transforming distribution--even the agents themselves. "Depending on the carrier's starting point and ambition, this transformation could lower acquisition costs by 10% to 20% while simultaneously raising total agent compensation, reduce administration costs by 20% to 30%, and allow insurers to deploy capital more efficiently."
The Economic Fundamentals Are Broken
One of the report's major conclusions is that the fundamental economics of the global life insurance industry are broken. Over time, distribution has consumed an increasing share of the industry's total economic value, particularly compared with
customers' declining share. To restore balance, carriers need to reinvent their distribution to improve productivity. For example, by investing in data and predictive analytics capabilities, carriers can provide agents with highly qualified leads. BCG's Calvert says: "By improving productivity, carriers can help lift an agent's overall level of compensation while also reducing per unit sale compensation. This will attract new talent, while increasing economic value for customers and shareholders."
Reinvigorate the Agency
The report identifies four foundations of distribution transformation and explains that there is significant value at stake for insurers that successfully manage to reinvigorate the agency, revamp solutions, drive efficiencies, and address the in-force books of business. Carriers need to start by improving agent "life cycle" management: recruiting, onboarding, and retaining agents to create a more vibrant and productive channel. Improvements are critical when you consider that in the US, for example, the agency workforce is quickly aging and yet only 4% of millennials are interested in a career in insurance. One way to better manage the agency workforce is to segment agents based on performance and build a nimbler support function to maximize their potential. The top-performing segment can also be an excellent testing ground for support services that carriers might roll out to the wider agent population.
Lessons from Emerging Markets
While innovation in the distribution channel is necessary across both developed and emerging markets, BCG's Bellizia says that "global insurers from developed markets should consider leveraging strategies from successful insurers in emerging markets, particularly those in China." Despite the steep growth and churn in agents over the past few years, she notes that China has been achieving significant per agent productivity improvements. The transition to a digitally delivered, analytics-enabled, end-to-end experience has contributed significantly to these productivity gains.
A Hybrid Approach to Distribution
Despite the shift toward a more hybrid human/technology distribution model, direct digital sales today mostly involve simpler products, such as term insurance and personal lines of insurance. Given the complex nature of many life insurance products and the emotional component often involved, human interaction to facilitate sales will continue to play a significant role.
A copy of the report can be downloaded here (https://www.bcg.com/publications/2019/reinventing-life-insurance-agency-distribution-globally.aspx).
About Boston Consulting Group
Boston Consulting Group (BCG) is a global management consulting firm and the world's leading advisor on business strategy. We partner with clients from the private, public, and not-for-profit sectors in all regions to identify their highest-value opportunities, address their most critical challenges, and transform their enterprises. Our customized approach combines deep insight into the dynamics of companies and markets with close collaboration at all levels of the client organization. This ensures that our clients achieve sustainable competitive advantage, build more capable organizations, and secure lasting results. Founded in 1963, BCG is a private company with offices in more than 90 cities in 50 countries.