The Growth of Carriers Offering Coverage to Clients

By Joseph Peters

Insurance companies today are experimenting with direct-to-consumer (DTC) sales. Frustrated? Don’t be. Just learn from their experience and revise your business model and marketing approach accordingly.

Imagine that your father brought you into the family business in a sales capacity. He trained and supported you hoping you’d become a major revenue producer for the firm. But then the unthinkable happened...he returned to selling and began competing with you for new prospects. Not only that, he began giving you less mentoring and sales support so he’d have more time to sell. This made it harder for you to achieve your sales goals. How would this make you feel?

As America’s life and property & casualty insurers ramp up their efforts to sell direct to consumers, agents and brokers are having their own version of the family crisis just described. In many cases, insurance carriers hired them as captive agents or contracted with them as independent agents or brokers. As the relationship matured, both parties viewed the other as an essential partner. The contributions of each were necessary for both parties to succeed. But then one entity—insurance companies—began experimenting with new methods of generating sales that no longer relied as much (or at all) on agents and brokers.

As you might imagine, the insurance industry’s direct-to-consumer sales have become a sore point in the agent/broker community. Yet, if insurer DTC efforts succeed, their profitability might also increase, growing resources to invest in traditional agency distribution. Might this become a win-win scenario for both insurers and their producers?

DTC programs respond to several long-term insurer challenges:

• First, they’re an attempt to address sluggish sales growth in some sectors that has persisted for years.
• Second, they address insurance consumers wanting greater control over their purchase journeys and authentic brand experiences and communications.
• Third, they’re a means of giving consumers expanded and more responsive e-commerce functions, especially “click and bind” applications and simplified underwriting.
• Fourth, they’re a response to the life insurance segment’s anemic market penetration, which has stalled at roughly 70 percent since 2010.

DTC on the March

Given these insurer needs and profound shifts in buyer preferences, the insurance industry has spawned an insurtech ecosystem to drive DTC sales. It serves both in-house ventures and third-party partnerships. According to CB Insights’ insurtech funding study, venture capitalists pumped $1.56 billion into the insurance industry during the second quarter of 2020, more than in any quarter since 2014, with the exception of the second quarter of 2015 and the fourth quarter of 2019.

These robust DTC investments are starting to bear fruit. In the life insurance sector, LIMRA’s U.S. Life Insurance Ownership Trends report revealed that 29% of households had purchased coverage direct from an insurer in 2016. That number is likely higher today. “There are many factors that contribute to the increase in direct purchasing,” says Jim Scanlon, assistant vice president, LIMRA Insurance Research. “But the overriding cause is the evolution of technology. Direct marketing through mail, phone, radio and television each acquired a share of the market when they were introduced. Now, powerful online marketing capabilities are taking a share, so the (DTC) effect is cumulative. As consumers and businesses become more comfortable with technology, we can expect to see that market share grow.”

In the second quarter of 2020, another LIMRA study found that the life insurance annualized premium fell by 5%, largely due to the pandemic. Yet policy count was up 2% in part because of the impact of DTC sales. “Direct-to-consumer whole life contributed significantly to the increase in new whole life policy sales in the second quarter,” said Elaine Tumicki, corporate vice president, LIMRA Insurance Research. “Whole life policies sold directly from the manufacturer surged 32% compared with prior year results, (while) declines in affiliated distribution channel sales dampened growth for the quarter.”

The evidence for DTC’s success in life and health insurance is everywhere. For example, Guardian Life entered the DTC space several years ago to boost sales of its dental insurance product. It later began efforts to sell life insurance directly to employees at the worksite. The strategy is to reach independent contractors and gig workers who aren’t eligible for traditional employee benefits. Since workers such as these fall through the cracks of Guardian’s traditional worksite-based sales approach, the decision was made to sell directly to them using the latest DTC technologies.

Similarly, Prudential joined the DTC movement in 2018. As the largest U.S. life insurer, its LINK service represented a true sea change for the company, which had traditionally sold its products through a large financial advisor channel as well as through employer-sponsored arrangements. Unlike some other DTC players, Prudential uses omnichannel distribution, selling through its LINK website, remote agents and face-to-face agents. Customers can choose as little or as much advisor involvement as they’d like, a company official said.

Another recent development has been the growth of DTC term life insurance websites. At online platforms such as Haven Life (a unit of MassMutual), Ethos Life Ladder and Bestow, consumers can review term life quotes, easily apply for coverage with streamlined underwriting, get approved in a few minutes and buy term coverage for just a few dollars a month...all on their smartphones or iPads.

These and other life/health insurance DTC ventures have mastered what it takes to appeal to Millennials. They prefer to do business on their phones and want their shopping experiences to be easy, friendly, simple and fast. To the degree such platforms have figured out what younger consumer need and want, legacy agents must respond in kind, especially those who use term life sales as a door-opener to younger clients who may upgrade later to permanent life insurance, investment products and retirement plans.

On the property & casualty side of the industry, executives are similarly upbeat about DTC’s growth prospects. A Best’s Special Reportentitled DTC: Expanding Distribution and Seeking Opportunities found that 40 percent of executives said DTC was the most popular distribution channel under consideration at their firms, in part because of consumer expectations. They also viewed DTC more positively than they did workplace insurance, mergers and acquisitions and geographic expansion.

In the auto-insurance segment, DTC has been growing steadily in recent years. According to a report from J.D. Power, 54 percent of the 6.2% of premium growth in auto insurance came from DTC policies. This was a direct result of consumers seeking more digital options for purchasing directly from insurers, the noted customer satisfaction researcher said.

Similarly, there’s been an explosion of DTC P&C websites selling various forms of commercial insurance. One of the most prominent players is 360 Coverage Pros. The site features technology to simplify the insurance buying process and rich content that helps prospects assess their needs, consider options and buy wisely.

Regardless of whether they sell life or health insurance, investments or commercial P&C insurance, companies have a new reason to value DTC sales: resilience. In the aftermath of the Covid-19 lockdown in the spring of 2020, companies experienced a significant drop-off in submitted legacy-agent business, but a stable or growing amount of applications from online insurance aggregators and direct channels. If insurers want to prepare for the next exogenous event to disrupt their value chain, they will need to rethink and harden their distribution model. Adding DTC capability will help to achieve that.

The Agent/Broker DTC Response

In light of the powerful DTC trends discussed above, how should agents and brokers react? For starters, they should realize the industry is evolving and react accordingly. Here are some steps to consider.

When the competitive environment changes, adopting a new business model (or revising your existing one) often makes sense. For example, you might decide to protect your agency by achieving greater scale. Bringing more agents on board or acquiring competitors might help you to defend your current book of business against DTC forays or to more effectively attract new customers. Conversely, you might focus on a narrower market niche...perhaps serving customers in one or several industry segments or clients of a certain size. Or you might opt to become a small local agency serving a mix of customer types, but with a lower cost structure. Although small generalist agencies might have difficulty prevailing against large multiline ones, they might be well positioned to stave off DTC insurers by knowing their local community better and being closer to their customers.

Here’s another possibility: you might add links to the value chain insurers have controlled in the past to your own business. For example, designing products that meet local needs instead of waiting for insurers to create them or acquiring claims-handling authority might help you compete against DTCs. There are other possibilities, too. But the bottom line is this: when you’re under competitive pressure, it’s crucial to revisit your assumptions and move to a more defensible model in order to survive.

Creating a digital transformation plan is also a good idea, says Mike Furlong, CEO of Indio Technologies, a digital insurance technology provider acquired by Applied Systems in 2019. This will help agents and brokers understand their clients’ buying journeys and support them digitally. The analysis hinges on understanding every step in the application process and how sophisticated clients want that step handled. Furlong also suggests an assessment of agency digital resources, including its:

• Agency management system
• Current digital strategy and gaps from the customer’s perspective
• Long-term strategy and short-term goals
• Digital assets for accomplishing goals and the steps needed to acquire those assets
• Success metrics

The point of the above process? To become a customer-centric agency that uses digital technology to drive communications and sales journeys. According to Furlong, useful technologies include online customer portals (for storing application information), smart forms, automated email reminders and chatbots and e-signatures (so insureds don’t have to print, sign and scan policy applications). Also essential is a fully digitized marketing system that uses best practices in search engine optimization, social media promotion and direct-to-consumer digital advertising.

Agents and brokers who wish to compete with DTC insurers must figure out how to give clients a consistent, omnichannel customer experience. Thus, if a prospect begins the application process on a mobile device, the person should be able to finish it on a desktop computer or via agency live chat. Achieving this flexibility requires an intimate understanding of the customer’s buying journey, a mobile optimized website, and consistent branding and messaging across channels.

Finally, enhancing your digital marketing and communications arsenal will require a commitment to building customer analytics and your ability to interpret them to strengthen customer satisfaction and retention. At the end of the day, says Furlong, you should be able to recognize customers by name, know their purchase history and be able to identity and initiate cross-selling opportunities based on prior purchases.

Although much of the foregoing discussion assumes you’re defending yourself against DTC insurers, here’s another way of looking at it: If you can achieve digital parity with insurers— becoming as good as they are at engaging with prospects online and communicating with clients digitally—it might open future avenues of collaboration with them. There’s an additional argument to be made as well… insurance is something everyone knows they need but few really understand. Although customers want quick, easy purchasing options, it’s important to remind consumers of the value you bring as a licensed insurance agent. Not all carriers are created equally, and often times an experienced and licensed agent can prevent insurance gaps and issues resulting from being under-covered.

To return to our opening story, a person who can hold his or her own against a competitive parent in a family business may set the stage for a more fulfilling and productive relationship in the future. In this and the insurance context, getting equal makes a lot more sense than getting mad.

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