Multi-channel distribution was one of the top three strategicinsurance topics fielded at TowerGroup in 2010. The other two werecloud computing and socialmedia. The discussions on multi-channel distribution weredefinitely more complex and, frankly, more interesting — at leastfrom an analyst perspective.

Not that cloud computing and social media aren’t very importantstrategic subjects — they definitely are. But the topic ofmulti-channel distribution not only hits upon a complex suite oftechnology, it also brings with it a discussion about historicaldistribution channels. All of the insurers I have worked for inmy career were singularly committed to the independent agent andbroker channel. My longest standing allegiance is to this channel,though I have full appreciation for other distributionchannels.

During discussions about multi-channel distribution, there wasfrequently a level of emotion and angst amongst the participantsthat usually was not there when talking about cloud computing andsocial media because disintermediation of current distributors waslooming. Quite frankly, I can relate to this.

Despite all of the gnashing, however, very clearly consumerswant flexibility in how they purchase insurance and how they obtainservice. Failure on the part of an insurer to deal with this fact,one way or the other, will start the opening of a very largecompetitive gap. Not all carriers will come to the same set ofanswers, as there are several ways to respond to consumer demands,but having the discussion is necessary.

Another uncomfortable truth is that the discussion ofmulti-channel distribution applies equally to personal lines ofbusiness as it does commercial lines of business. This isparticularly true when the discussion is broken down into a salestrack and a service track.

For more complex lines of business, there is a genuine andearnest need for expert insurance advice when selecting coverageand engineering risk. However, even a large commercialorganization will sometimes just need to obtain basic informationor perform a routine task via a web portal or contact center.Determining that multi-channel will apply just to service is avalid decision for many carriers.

Once all the wrangling and wrestling is complete, and thedecision to move forward is made, that’s when I get very nervous.Many times I have observed the team appointed to develop “the newthing” run scampering off like an excited pack of puppies — becausenew channels are pretty cool — before some very importantadditional decisions are made.

The pivotal question is: How does the company keep fromdeveloping a whole new set of conflicting silos? Insurers havespent enormous amounts of time and money breaking down and unifyinglegacy product and line-of-business silos. Many carriers are stillin the throes of it all! Without some very focused attention torationalizing the new channels with the existing ones, carrierswill be creating the new legacy silos that will drain resources inthe future.

While legacy silos are expensive, due, most notably, toredundant technology across the organization, the bigger, long-termdownside is customer dissatisfaction. If architected and builtcorrectly, new sales and service channels will have the flexibilityto respond quickly to changing product and servicerequirements.

Self-service is one of the primary goals of most currentmulti-channel initiatives and is valued by consumers. Withoutrationalizing features and functions across all channels, customerdiscontent will run very high when they find that they canaccomplish something in one channel that they can’t in another.

On the surface it might appear to be acceptable to have isolatedproducts and services based on channel. In fact, with the use ofanalytics and models, buying and service preferences withinchannels will reflect the unique demographics of those within thechannel. However, insurers must assess which products and servicesare specifically unique to a channel and which are universal. Theuniversal products and services must be replicated acrosschannels.

It is erroneous to think that consumers will stay with achannel for their entire insurance-buying lifetime. Some will, butmany will not. The current hype is around the direct-to-consumer,internet channel. This channel is important for many individuals,particularly Gen Y. It is one thing to obtain basic automobile orrenters’ coverage online and a whole other to execute coverage formultiple automobiles, a house, recreational vehicles, and anumbrella that all become necessary as careers, age, and familysizes increase.

Insurance is complicated and moving from a direct channel to anadvisor channel will become important to even the mosttechnology-savvy consumer over time. Insurers must be prepared tomove customers between channels without loss of valued services.When the “new channel” is better than the “old channel,” consumerswill find an insurer that has already rationalized their sales andservice channels. After having invested in the acquisition of thatcustomer, this would be a very unfortunate outcome.