In the midst of this unprecedented crisis, insurers have the opportunity to transform and create sustained value, but they must move quickly, be bold, and focus on long-term results. In the past four downturns, 14% of companies, on average, were able to increase both their sales growth and EBIT margin despite the challenging circumstances.
To build advantage in adversity, insurers must embrace what we call bionic distribution, blending human talent with digital technologies in new ways to create fast, intuitive, and digitally enabled experiences for customers. Bionic distribution relies on three core building blocks: creating a digitally enabled sales force, expanding the reach of distribution, and optimizing distribution economics.
After months of extraordinary lockdowns, economies have entered a very delicate phase that we call the fight phase. Businesses must determine how to bring employees back to work sites and how to interface with customers while keeping the infection rate under control. BCG expects the fight phase to last 12 to 36 months. The COVID-19 pandemic has already changed what customers want from companies, including insurers. How customers want to engage with insurers and where they choose to spend their money has also shifted. We believe these changes will persist.
For early adopters, bionic distribution has been a game-changer. They have boosted productivity by 15% to 20%, cut the time to market by half or more, improved the net promoter score by 20 to 40 percentage points, and lifted revenue by 5% to 10%. To achieve these benefits, insurers must build their capabilities. (See the exhibit.)
Create a digitally enabled sales force. To reignite sales and expand margins, carriers must fundamentally change the way they think about distribution.
Traditional omnichannel and multichannel methods do not have the agent as the “superhero” or navigator at their core. A bionic distribution model, however, deploys agents who can add value at key moments in the customer journey and who are supported by an easy-to-use digital experience when their expertise and assistance is not needed. This means simple products and low-value activities should be fully automated and migrated to digital channels, while complex, high- margin, bespoke activities are managed by people who are supported by digital platforms and tools. (See the sidebar “Three Forms of Bionic Distribution.”).
Insurance companies have been investing in advanced analytics for years—and now is the time to monetize these capabilities by driving frontline adoption. With a digitally enabled sales force, insurers can leverage advanced analytics and AI to reimagine customer journeys, personalize the customer experience, and build modular insurance products.
Expand the reach of distribution. The insurance industry has historically been structured around product verticals, but customers are demanding a simpler, integrated journey. In addition, an inherent weakness of the insurance industry is that interactions with customers occur less than a handful of times per year.
As insurers fight to stay relevant and visible to their customers, ecosystem partnerships offer an opportunity to expand their role beyond product placement. Partnerships can give insurers access to new proprietary data, which they can use to deepen their customer relationships and win new customers. As the amount of ecosystem data grows, thanks to more frequent interactions, insurers can offer customers a better experience with more personalized product offerings, rewards, and service, delivering it in the right channel (such as through the web, mobile device, or email) and at the right moment (on the basis of location and time of day, for example).
Using this approach, insurers can double or triple their penetration across all market segments and boost conversion rates by three to five times. Ecosystem partnership opportunities are particularly relevant in the automotive, connected homes, and digital marketplaces. Examples vary widely: A European reinsurance company partnered with a multinational furniture retailer to provide bespoke, white-label home insurance. And a multinational insurer customized its products to fit each of its distributors’ platform-specific customer journeys, creating an integrated ecosystem and a seamless experience for users.
In addition to creating new partnerships and ecosystems, insurance companies have an opportunity to expand the reach of their direct channels (both online and remote-to-consumer channels) when targeting digital natives or selling simple products. During the pandemic, new digital offerings have been quite successful in many regions, and we expect this trend to continue, or even to accelerate, in the postpandemic era.
Optimize distribution economics. Insurers have a unique opportunity to reduce distribution costs. Insurers, in both life and nonlife markets, have been wrestling for years with the need to reduce costs. In the wake of the pandemic, and with today’s lower-for-longer rates, cost reduction has become an imperative. This is particularly true for companies operating in developed economies and low-growth markets. In emerging markets, where growth rates are still in the double digits, the pressure to improve cost productivity has been less intense.
Distribution accounts for approximately two-thirds of insurance costs, and it has been relatively hard to tackle as distribution partners—agents, advisors, and brokers—have vehemently resisted any cuts. With bionic distribution, insurers can reduce distribution costs by digitizing activities that add little value, transitioning to lower-cost channels, and supporting sales representatives with digital and AI tools to be more productive. Ultimately, the goal is to create a smaller, more productive sales force, supported by digital channels (such as online platforms and remote advice centers) to reach a larger number of customers.
The stakes are high in a crisis—and smart business decisions are more critical than ever. In previous downturns, 14% of companies, on average, were able to grow their top and bottom lines and emerge stronger. By implementing AI at scale, becoming bionic, and building strong digital ecosystems, insurers can accelerate the digital imperatives that will create a lasting competitive advantage.