US insurers' strategy moves to direct online sales

A competitive marketplace and changing customer habits are driving insurers in the US to invest in online sales strategies, says a new report by independent market analyst Datamonitor. By developing an online sales strategy, insurers are able to lower customer acquisition costs, as well as gain control of the customer relationship.

Wide scale adoption, however, will be tempered by the fragmented regulatory regime and the powerful agent forces in the US. The report, Catching Up: Online Direct Sales in US Personal Lines Insurance, highlights several ways that US insurers with existing agent channels can develop a direct sales strategy.

“Because of the market conditions, insurers need a way to efficiently deliver their product and increase per customer profitability, which is possible with an online sales strategy,” says Jonathan Steiman, a Financial Services Technology Analyst with Datamonitor and the report's author. “But perhaps even more importantly, insurers need to move online to meet the needs of an increasingly internet-centric consumer.”

Steiman warns, however, that an online sales strategy can be fraught with risk. “For insurers with agent forces, which are the majority of insurers, there is a real threat of agent backlash. Also, as more US insurers move online aggregators will begin swarming like sharks, threatening the very customer relationship insurers hoped to own with a direct online strategy,” Steiman says, referring to the broker-like websites that collect insurance quotes from a number of insurers.

Direct online sales can deliver improved financial performance

Today's market is challenging. Insurers are facing a soft pricing environment, as well as poor investment income. The combination of these two factors is placing great pressure on the bottom line. To bolster their competitive position insurers need to adopt cost efficient sales and servicing strategies, as well as improve the customer relationship - both of which are possible with an online strategy.

Customer acquisition costs can be dramatically reduced with an online strategy, thanks in large part to low or no commissions. But nothing is free. Online direct sales require massive amounts of advertising; GEICO and Progressive Corp. being prime examples.

A successful online direct sales strategy enables insurers to own the customer relationship. Under the typical agent model, the agent owns the customer relationship, in that they manage nearly all interactions, while the insurer simply carries the risk. As a result, many insurers have struggled to manage their brand, drive cross- and up-sales and capture pertinent data. By selling direct to the consumer, insurers can conquer the policyholder relationship, leading to improved profitability.

A successful online strategy begins with the customer experience

Buying insurance can be a daunting task, which is why so many consumers find solace in agents. Insurers, therefore, must try to closely replicate the consultative nature of agents with their online offering. Insurers can achieve this two ways.

First, websites should be designed dynamically so that only the pertinent questions are asked. If, for example, an auto applicant indicates they will be the only person on the policy, then the section for “additional drivers” should not be presented. “It seems simple enough, but insurers have had the bad habit of simply digitising existing paper forms,” says Steiman.

Second, security is a key concern for consumers. It seems like every day a financial services firm compromises their customer data. Insurers, who oftentimes possess financial as well as personal health information, must do their best to ensure data safety. For this reason, it is imperative that carriers with online strategies invest in verification and encryption technologies.

Notes

Datamonitor's report, Catching Up: Online Direct Sales in US Personal Lines Insurance, looks at direct online insurance in the United States personal lines market. Auto insurance, which makes up the large majority of personal lines market, is often highlighted and the gamut of technologies that enable a direct online strategy are discussed.