Best’s News & Research Service - December 09, 2016 08:59 AM (EST)
A.M. Best Special Report: Shifting Dynamics Could Lead to Distribution Channel Innovation
- December 09, 2016 08:59 AM (EST)
Oldwick //BestWire// - As distribution channels used by U.S. life insurers have seen new forms of competition and challenges due to changing demographics and macroeconomic conditions, as well as new types of competitors and regulatory challenges, a rapid, strategic evolution is necessary over the short term if the sector is to remain profitable, according to a new A.M. Best special report.
The Best’s Special Report, titled, “Shifting Dynamics Could Lead to Distribution Channel Innovation,” states that domestic insurers are starting to see distribution competition through alternate channels, such as affinity groups, retailers and online comparison platforms. Larger retail stores like Walmart offer automobile and health insurance products; however, other retail chains like Costco and affinity organizations such as AARP offer a more diversified suite of products that include life and other insurance lines. Another consideration is the presence of Amazon, Apple and Google, which have strong balance sheets with large databases of customer information, superior technological resources and a significant amount of excess capital. Should they decide to make a large scale entrance into the insurance marketplace, this could further disrupt the current U.S. life insurance distribution model, which historically has been slow to adapt and is hindered by inefficient legacy systems.
Compounding pressures from potential alternative distribution competitors are issues surrounding training and demographics of the existing traditional agents. According to a recent A.M. Best survey, the top three concerns in recruiting new agents for life/annuity insurers include: being unable to attract younger talent (32.3%), lack of needed sales skills (24.2%) and the lack of knowledge of the insurance industry (21.0%). Notably, 62.5% of productive agents are over 50 years old, while just 3.1% are under 35.
Another A.M. Best survey found that broker/dealers accounted for the largest allocation of New Business Annualized Premium, at nearly 30% in 2015. Some insurers had been acquiring independent broker/dealers in previous years as they searched for new distribution outlets, though many have since disposed of them due to the 2008 financial crisis. A.M. Best remains somewhat concerned about the financial consequences for insurers who continue to own and operate independent broker/dealers, and believes additional fines are possible as a result of the recent scandal related to the opening of fake unauthorized accounts at Wells Fargo. The U.S. Department of Labor’s fiduciary rule gives further reason for insurers to consider separating themselves from this distribution outlet.
A.M. Best believes the industry will likely continue to modernize customer engagement due to the shifting preference by consumers to use the internet for direct sales and as a first point of sale. This trend has been leading to a necessary reinvention of the life insurance business model, which is crucial to reach millennials and the middle market, as well as meet consumers’ flexible work demands. While technology offers many benefits, human interaction is still a key part of the sales experience. Continued investment in people, process and technology, such as the potential integration of model validation with data analytics and predictive modeling, likely will lead to improved sales and underwriting results.
To access the full copy of this special report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=256555 .
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