Why the Insurance Industry has Been Slow to Adapt to the Modern Era
As insurers are more and more looking to sell online, an argument often clung to is the old adage that insurance is sold not bought. This is despite:
1. other industries proving that you can also sell over the internet, in many cases more successfully than through traditional methods,
2. the rapid growth of online insurance sales in many countries in recent years, and
3. recognition that most consumers start researching insurance online.
It seems inevitable that online sales will disrupt the insurance industry - the question is “why has it taken so long?”
Amazon launched in 1994, initially only with books, Expedia a year later in 1995, Zappos has been selling shoes online since 1999, Warby Parker - glasses online since 2010 and Casper have been delivering mattresses from online purchases since 2014. There were some attempts by companies in the early 2000’s to sell life insurance online in North America, but these were simplified issue products limited underwriting, limited sums assured and expected the customer to pay the price in the form of higher premiums. This was never going to be a formula for success.
The first company to sell fully underwritten life insurance was Pinnacle Life in New Zealand in 2007, they were able to undercut their competition in price and grew more than 5x faster than rest of the industry, so why has North America been so slow to follow? This article discusses five reasons for this.
Reason #1 — Internal Barriers
With almost all their business coming from insurance agents, insurance companies have been reluctant to rock the boat and upset this very important channel. This is truer in North America than in other countries where sales agents have less ownership of the client. Initial online propositions were perceived as an alternative distribution channel competing against agents rather than one that can compliment them. We now see this changing with agents seeing the benefits of working alongside an online distribution channel.
Reason #2 — Insurance Culture
Aside from the barriers presented by the perceive competition against insurance agents, insurance companies have a reputation of been slow to adapt. This may be a little unfair as the industry went through tremendous upheaval in the late 1990’s due to the looming Y2K concerns and the long-term nature of our business. That being said, once we had passed Y2K it was business as usual, using technology to make products more complex rather than customer friendly.
Reason #3 — Product Features
A product that works well in a face-to-face scenario is unlikely to translate successfully to an online product. While this should be obvious, it often hasn’t been obvious to the incumbents - product design is often driven by people who have come through the traditional distribution channel and they are unable to see the benefits of a simpler product supported by a customer self-serve process.
Reason #4 — Regulations
Insurance is heavily regulated, and these regulations are written with an agent-based distribution in mind. This leads to two immediate problems:
1. the regulations can be ambiguous when it comes to online distribution, or
2. the wording of the regulations can imply the need for paper, such as having each page initialed.
Regulations developed with online distribution in mind would be much more efficient and better serve the public they are intended to protect. But this takes time and changes to regulations in any industry are driven by companies involved in that industry. The insurance industry has actually fought change based on the reasons outlined above.
Reason #5 — Technology
One reason our industry is so heavily regulated is its complexity. This complexity also means that it is not so easy to sell life and health insurance online as personal details regarding health need to be captured and decisioned in real time. Simplified Issue products are the equivalent complexity of buying retail product online, this approach has many drawbacks that it feels like using technology for the sake of technology.
In order to effectively sell online the online sales system needs to effectively deploy reflexive questioning and analytics. Despite the fact that these have been available for over ten years, until now the upfront cost for such a system to enter an untested market may have been seen as cost prohibitive. Beyond the technology there are the challenges of navigating regulations, product design and pricing, finding effective reinsurance and integration with other systems - these are all obstacles for an industry population by companies that like to “build it in-house”.
Slow, but Change is Coming
I believe we have now passed the initial uncertainty regarding online distribution; some countries now see a significant proportion of their life insurance sold online and others are actively developing online solutions. The obstacles described above have all been overcome and insurers are actually coming up with innovative ways to incorporate an online strategy alongside their existing distribution. It is no surprise that a recent poll of industry professionals predicted that more than 30% of new business will be derived from online sources within the next five years.
