The advent of the Internet triggered a digital revolution that completely redesigned many sectors of the economy. However, it has barely registered within the insurance industry. Here, traditional sales structures still dominate and have hardly changed for about a century. Nevertheless, here too, some major changes are emerging that could reshape this industry. We have already seen the first providers using digital platforms to sell insurance. These methods offer enormous advantages, so it can be assumed they will soon offer strong competition to the industry’s traditional distribution channels. Therefore, it is important for all companies in the insurance industry to engage with these new technical opportunities at an early stage.
The traditional form of distribution: expensive and old-fashioned
Until now, the sale of insurance has been based upon a strictly linear model. It starts with an insurance agent, who has direct contact with the customer. This person usually works for a general agent, who in turn works for an insurance company. At the end of this chain are the big reinsurers, whose function it is to reduce the risk for the individual insurance companies. However, this chain also introduces high costs. Each individual member adds a margin for his own services – and rarely a modest amount. This in turn makes insurance products very expensive for the end customer. In addition, this system is extremely static. As a result, insurance companies tend to design products that are based primarily on their own needs, rather than on the wishes of their customers.
Digital platforms: the future for transacting insurance contracts
Since the traditional distribution system for insurance has many disadvantages, it represents a huge target for competitors offering new concepts. First and foremost are digital platforms. These break with the traditional distribution chain: firstly, they are in direct contact with the end customer, and secondly, they only need a service provider who can handle the management of risk capital. This is what a reinsurer can offer. The high margins that apply in all areas of the traditional distribution structure make it very attractive for Insuretech companies to compete with the traditional model. Shorter distribution channels make the sale of this form of insurance much more efficient. Companies such as Sherpa in the US and ZhongAn in China have already shown how successful this new kind of distribution can be.
Focus on customer needs
Digital platforms also offer another major benefit for insurance sales: they enable strong personalisation. In the conventional model, only a few products were available. However, these often failed to meet the customer’s precise needs. Nevertheless, often through the persuasive intervention of an insurance broker, they decided to accept a product, even when the insurance they purchased was not actually necessary. However, digital platforms make it possible to put together customised offers. In this way, the insured person secures the exact product that matches their needs – which undoubtedly contributes to customer satisfaction. The ability to individually assess the risk for a single customer also has advantages for insurers.
Automation offers advantages for customers and providers
The use of digital platforms offers the facility to automate many processes, which also contributes to customer satisfaction. Instead of filling out cumbersome forms and then being forced to wait a long time for a response, it is much easier to enter all the details online. The processing is done electronically, without the need for an employee to intervene. Therefore, customers receive results that are displayed within fractions of a second. As a result, it only takes a few minutes to conclude the relevant contract. Of course, providers also benefit from automation. Costs are considerably reduced. This consideration also makes it more likely that digital distribution models will soon replace traditional structures.
This article was originally published on LinkedIn.