Five key challenges facing the insurance industry

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1. It has been a soft market for a long time

The commercial insurance market has been soft since the early 2000’s. Although there are signs the market is hardening, in certain segments at least, the pressure on premiums and commissions is forcing agents to change tactics. 

Some have specialised in faster growing segments such as cyber insurance or home health care. Most are reducing operating costs, and everyone is trying to secure better arrangements and commissions from carriers.

2. The sector is growing…slowly

From a high of 12.5 per cent in 2006, annual agency growth slumped to 1 per cent in 2010, although it has since recovered — S&P forecast an average 3 per cent to 5 per cent growth in 2018.

That’s a bit higher than global GDP growth (about 4 per cent pa) but the message is clear: agents can’t take growth for granted and need to work smarter and harder.

Adding revenue streams from new markets or business lines, cross-selling to the customer base. and prioritising customer satisfaction to encourage retention have taken on increased importance.

3. M&A is an attractive, but difficult, option 

In a slow-growing soft market, size matters, and more agents are considering a merger or acquisition to complement organic growth. Insurance agency M&As soared by 31 per cent in 2017 and the pace is still high this year.

Aside from revenue growth, M&A is attractive because scale — more staff, products and business lines —   helps the agent reduce risk, avoid hostile acquisition, or position itself as an attractive acquisition target.

But for all their benefits, making a success of a merger or acquisition is not straightforward. Inexperience or poor leadership can mean the loss of key people, closing business with a low ROI just to meet aggressive revenue targets, or spiralling costs because management attention is elsewhere.

4. Rules and regulations are getting tougher

State and federal agencies, along with the National Association of Insurance Commissioners, continue to tighten the operational framework for US agents, and those that operate outside the country have even more strict compliance obligations.  

The Department of Labor Fiduciary Rule, which governs how an advisor deals with a client, will be strengthened later this year, and the European Union’s updated Insurance distribution Directive takes effect in October.

Cybersecurity regulations are getting tougher and, although they are not specific to the insurance sector, data protection regulations — GDPR in Europe and the emerging Data Security and Breach Notification Act in the US — are increasingly important to agents, given how fundamental personal data is to their day-to-day operations.

5. Customer expectations have changed

Research has shown that over 70 per cent of customers expect businesses to tailor communications and services based on knowledge gained from previous interactions, and they want a frictionless experience - hassle-free, no waiting, and self-service where possible. 

Buyer demographics are also changing. Digital-savvy millennials are gradually replacing baby boomers as the main buyers of personal insurance and, with a phone always in hand, expect to transact anytime from anywhere. 

How to meet the challenges

Faced with these challenges, it is more important than ever for agents to maximise sales from their client base, deliver a compelling customer experience, and keep costs in check.

Technology can deliver on all of those, but many agencies are stuck with legacy systems that are slow, inefficient and make access to data difficult.

Modern agency management systems, on the other hand, put data at the heart of the business, allowing agents to make decisions based on hard-edged analysis rather than intuition.

Effective data management gives them a better understanding of customer behaviour — when, how and why they interact with the agency — meaning they can offer a personalised service, pre-empt problems, and tailor products in response to changing needs. 

Here are a few ways to overcome the aforementioned challenges:

Use data to improve sales campaigns

Analysing transactional data helps find under-performing accounts and those that are a priority for cross-selling and up-sell campaigns. Moreover, knowledge drawn from purchasing histories, service requests, and other behavioural patterns can be turned into prompts for the sales team, allowing them to make personalised recommendations during sales calls. 

Streamline processes to reduce costs

The benefits of increased revenue from better selling can easily be undone by a slump in profits if costs are not controlled.

Slow and resource intensive, manual processes are an obvious target for automation — a McKinsey report suggests that costs can be cut by 40 per cent by automating 30 per cent of operations — and doing so not only helps margins but delivers the frictionless service expected by customers.

Improve customer satisfaction through self-service

Electronic channels, such as a client portal, make it easy for customers to provide information to support claims using a simple upload and to find policy documents on their terms: when they need them, and without having to contact the agent. Self-service has the added benefit of freeing up agency staff to focus on higher value tasks. 

Find problems fast with data-driven KPIs

Dashboards and automated reports let you monitor sales and marketing KPIs such as quote-to-policy conversions, policies sold, and new inquiries. This means you can decide if producers are as effective as they should be, or if marketing spend is producing a good return on investment.

And detailed time tracking can find inefficiencies or low-value activities where time and cost are being wasted. Even simple tasks — emails sent, calls made — add up to a sizeable impact on the bottom line and should be reduced or, where possible, done away with altogether.

Conclusion

Forward-thinking agents will look at sector challenges as an opportunity to differentiate themselves.  Modern technology lets them take a customer-led approach to front and back-office operations, leading to better customer satisfaction ratings, more referrals, higher revenue per customer and lower churn.

Roi Agababa, CEO, Novidea
Image source: Shutterstock/MaximP