Distribution Disruption Defies Insurers, Agents

Terry Golesworthy is the president of the Customer Respect Group, a user experience consultancy focused on the insurance industry. He spoke to I&T senior editor Nathan Golia about where he sees insurers missing the mark in that realm.

What, in your view, is the biggest barrier insurers face in providing the best customer experience?

Golesworthy: Most insurers are wedded to a single sales channel -- the local agent -- and frightened of changing too quickly and upsetting revenue flow, which increasingly looks inflexible. The problem for insurers is that consumer attitudes toward insurance are changing at a rapid pace, driven by convenient access to information and advice. While this started with the availability of the broadband Internet, the combination of mobile devices and social networking has created a paradigm change in which the flow of information is beyond the capabilities of insurers. This is opening the door for disruptive entrants and organizations that see the world differently -- and this is likely to be the biggest threat to the industry.

What kinds of disruptions are we already seeing?

Golesworthy: MetLife has begun experimenting with selling life insurance at Wal-Mart stores. Google, in the U.K., operates as an aggregator for auto insurance. Also, four supermarkets in that market sell insurance. In Thailand, you can buy a policy at 7-Eleven. In Italy, Amazon.com is rumored to be close to entering the insurance game. For sure, the U.K. market has peculiarities, with aggregator sites far stronger than could be replicated in the U.S., thanks to individual state regulations; but it does show one major fact - consumers are ready to look at insurance as a commodity even if insurers are not.

Why does this put stress on agent distribution?

Golesworthy: The barrier to entry for direct sales most often cited by insurers is the relationship and trust gained at the local level by agents. But with USAA consistently rated the most trusted carrier, this may be a false assumption. Arguably, the agent channel may actually be one of the weaknesses in the sales chain. There is a distinct technology bottleneck at the agent layer with poor websites, little or no mobile expertise, and lack of any social media knowledge or activity. The insurance industry will change in the next three to five years as consumers seek and find alternative and more convenient ways to buy policies. What would make a consumer buy through nontraditional channels? Convenience and price for sure. But trust and personal experience is critical, and for that, social networking will play a huge role.

What is the role of social media, exactly?

Golesworthy: Social networking is misunderstood by most insurers, being seen as a marketing vehicle, but it is, in fact, an enabler for a paradigm change. In place now is incredibly efficient plumbing for capturing and transmitting word of mouth, so voluminous now that it is starting to drown out other messages, in particular corporate marketing. People are now able to talk about insurers and instantly gain input from their networks. While some comments are irrational, facts are sometimes overlooked in favor of sentiment, and by the time insurers react (if they do), it is too late.

[Nationwide Financial Goes with Polaris for Claims]

Across all industries, 47% of socially connected consumers now admit to having attempted to gain customer service via social media. Progressive and State Farm both engaged with individuals over 85% of the time on their Twitter feeds. If social networks are plumbing, then mobile devices are adding faucets at an alarming rate, with the constantly connected consumer demanding a speed of response that the insurance industry is frankly ill-equipped to meet.

How can insurers get better at meeting these demands?

Golesworthy: We will likely see more online functionality move to the carrier, despite protests from agencies, but agencies will move too slowly and without consistency. Some insurers have approached the problem through acquisition, as Allstate has with Esurance, Answer Financial and Encompass. American Family acquired The General [and Homesite Insurance] for similar reasons, and we are likely to see more of this type of activity. We are also likely to see carriers focus on specific products for online proof of concept. New York Life refused to provide online quotes less than a year ago but now offers online term life insurance purchase up to $100,000. Hiscox, a major worldwide carrier, focuses its online strategy of small-business insurance on a strong social media awareness plan. Mutual of Omaha and Thrivent Financial both offer "low-end" products such as cancer coverage and guaranteed life for online purchase. These efforts, while laudable, may not provide the results needed with many of these products that are well-hidden on the company websites.

What would your closing message be to the insurance industry?

Golesworthy: Predictions about the impact of new technologies are famously absurd in hindsight. In 1876, Western Union said in a memo, "[T]he telephone has too many shortcomings to be seriously considered as a means of communications." But this isn't limited to the 19th century. InfoWorld in 1995 predicted that "the Internet will soon go spectacularly supernova and in 1996 catastrophically collapse." As late as 1999, Barron's produced a cover story titled "Amazon.bomb," asserting that the company had no chance against established players like Wal-Mart. Social networking and mobile are catalysts for change, and when those changes arrive, the insurance industry can't afford to still be asking, "Where's the ROI?" Smart organizations recognize disruptive technologies early and make adjustments equally on time.

Nathan Golia is senior editor of Insurance & Technology. He joined the publication in 2010 as associate editor and covers all aspects of the nexus between insurance and information technology, including mobility, distribution, core systems, customer interaction, and risk ... View Full Bio