Vol: 44 Issue: 2 | Aug 2021According to management consulting firm Oliver Wyman, the rules to building a successful business are conceptually simple: identify customer needs, build solutions to meet those needs, distribute — repeat.
This cycle, it says, has started getting shorter as customer needs rapidly evolve and the pace of change is accelerated by digital solutions.
However, Oliver Wyman says life insurance companies have failed to keep up with these changes.
‘For many, the need for and immediacy of change wasn’t as high as business performance, for the sector seemed stable and the threat of competition was quite low. The few players that did think about innovating around customer problems were burdened by legacy systems, poor data and internal resistance to change.’
The global firm adds that large-scale digital transformation programs have seen only incremental improvements over the past few years.
‘At the heart of it, we have an industry with very complex products, long underwriting times, cumbersome claims processes and disengaged customers.‘The issues in the life insurance industry are deep rooted and can’t be simply solved by digitising the easiest steps in the customer journey or plugging existing products into digital ecosystems.’
DISTRIBUTION IN ASIA PACIFICGiven this, it’s perhaps no surprise that Bernhard Kotanko, senior partner, Hong Kong, McKinsey & Company, says: ‘Asia-Pacific insurance in most markets is dominated by agency channels.
'This is very different from the model in Australia and New Zealand. Bancassurance is equally important in many markets, especially for savings-oriented products.
‘Digital and telemarketing only play a minor standalone role but are critical enablers as part of an integrated digital hybrid distribution.’
Angat Sandhu, head of Asia Pacific Insurance at Oliver Wyman, notes that bancassurance is now one of the dominant channels across most countries in Asia. Bancassurance accounts for more than 40 per cent of sales in many countries but just 10 per cent of sales in Australia and 35 per cent in New Zealand.
‘In most markets, bancassurance has emerged as a strong competitor to agency channel,’ says Sandhu.
‘The exceptions are Vietnam, where agency channel still has a market share of more than 80 per cent, and India, where agency has an 80 per cent share at a market level — although bancassurance is the largest channel for private players, excluding the state-owned Life Insurance Corporation of India.
‘Direct online still remains nascent but is fast emerging, especially in China where it has an 8 per cent market share and India where it has 2 per cent market share.’
Sandhu says that telemarketing and overall direct distribution still have relatively low market shares across Asia. And he adds: ‘The takaful insurance market is still small but is growing fast and increasing market share in Muslim-majority countries such as Malaysia and Indonesia.’ In contrast to most Asian markets, Kotanko says independent financial advisory channels and brokers are most relevant in the Australian market.
THE AGENCY CHANNEL
Kotanko says that, on one hand, the Asia-Pacific agency channel has not materially changed in decades.
‘It is based on self-employed entrepreneurs working on an exclusive basis to distribute products of one insurance company. On the other hand, agency has fully transformed and shifted from part-time, opportunistic selling to professional, full-time, advice-based and digitally enabled sales forces.'
Sandhu says there are two main categories of agency channels in Asia Pacific:
TIED AGENCY: Advisers and agents are exclusive to life insurance companies. Generally, more support is provided to tied agents, and there is also a higher level of engagement and supervision.
INDEPENDENT AGENCY: Advisers are autonomous and work with multiple insurers, which means they can offer product options across insurers to clients. Typically, the level of support and engagement is relatively lower compared with a tied agency.
Sandhu says life insurance distribution remains largely face to face.
‘While direct digital [fully online] sales are picking up, it still only contributes a very small share of sales in most markets across Asia.
‘But the face-to-face distribution model itself has been reinvented multiple times over the past few years — for example, the “offline to online” model has become extremely common, which means that although there may be a physical consultation, the advisers use digital platforms, including point-of-sale devices, tablets and mobile phones, to help with lead management, pitching and sales process completion.’
But while agency and bancassurance are the dominant retail channels throughout Asia Pacific, Kotanko says productivities across and within countries vary dramatically. ‘A top-performing sales force can outperform, on average, by five times and more.’
MORE CHOICE FOR CUSTOMERS
For Asia Pacific and specifically Australia, Kotanko says two types of trends are most interesting: the evolution towards more holistic customer-tailored and needs-based life and wealth advice; and the integration of digital analytics in distribution.
‘The latter further reinforces the quality and pace of change towards professional hybrid distribution,’ he says.
Sandhu adds that there is now a wide range of options for consumers in terms of what is the most preferred or trusted channel through which they want to buy life insurance — for example, through an adviser, through their bank, through an online channel or even through other digital platforms, such as their bank’s internet banking portal or ecommerce websites.
He says the pros and cons may vary by type of product. ‘For example, for a long-term savings plan, the key advantage of buying it through an adviser is to get advice on the right type of product, right ticket and right term of the policy based on specific needs, which may be difficult to understand online.
‘On the other hand, if it is a pure life insurance protection policy that is easy to understand, the advantage of buying it online is that the process is much faster and the premium price may be less.’
WHERE TO FROM HERE?
In the future, Kotanko expects life insurance in Asia Pacific to be increasingly sold in a customer-centric way, tailored to individuals and needs-based.
‘Insurance selling will be embedded in wider ecosystems and digital platforms,’ he says. ‘And the advice, selling, onboarding and service process will be 80 per cent in a digital hybrid model, allowing customers to connect when and how they prefer.’
Similarly, Sandhu expects digital channels and ecosystems to play a larger role in life insurance distribution in the near future. ‘Key drivers for change are likely to be changing consumer behaviour, accelerated digital adoption and technological advances,’ he says.
In a new report, Oliver Wyman observes: ‘Along with the escalation of data availability, the emergence of newer data sources — such as wearables, social media and customers’ shopping history — and the advancements in digital analytics, the future of life insurance re-imagined will be customer-centric instead of product-centric, as well as digital, simple and accessible.
‘Customers should be able to easily get a quote, buy a product, file claims and access agents, not only with a few taps but also with higher transparency and better service.’
Oliver Wyman believes the agency and bancassurance distribution models will continue to remain significant over the next 10 years. ‘However, life insurers need to rethink new ways on how to leverage these distribution channels. In this endeavour, digitalisation is the key in reinventing and transforming them.’
SHARE OF BANCASSURANCE IN LIFE INSURANCE SALES ASIA-PACIFIC MARKETS
- China — 41%
- Indonesia — 46%
- Hong Kong — 41%
- Malaysia — 42%
- Philippines — 48%
- Australia — 10%
- New Zealand — 35%
Source: Angat Sandhu, head of Asia Pacific Insurance at Oliver Wyman