Policyholders Are Leading the Way to Direct Channel

There once was a time when independent agents felt insurance carriers were looking at ways to squeeze agents out of the distribution process through the use of the Internet. Carriers denied there was any conspiracy, and–at the time–there probably was no reason not to believe them.

But 10 years into the new century, for some insurance lines–particularly personal auto–those long-ago fears may be coming to fruition.

An industry consultant from Ernst & Young doesn't believe carriers are the ones to blame for changes that likely will come in the insurance distribution channel. Policyholders, says Chris McShea, a partner in the E&Y insurance practice, are the ones looking for changes as technology becomes more ingrained in their shopping habits.

“I think insurers have had their paradigm on their channel conflict broken by the policyholders,” says McShea. “Policyholders want access to the direct channel–sometimes just for service and sometimes to purchase products or related activities. But it has to be there. The customer base has voted with its premiums it would like access to all channels.”

Distribution channels and other issues were discussed in the Ernst & Young report “U.S. Property/Casualty Insurance Industry 2010 Outlook.”

Also a topic of the report was the need for insurers to improve their infrastructure, even with a damaged economy that has created a difficult environment for funding projects.

“The challenging results carriers are likely to experience in 2010 will force more of them to make bigger bets on technology and transform their business model,”
says McShea.

Since he doubts a quick return to a hard market or a rebound on the investment-income side, he believes carriers will need to make more strategic bets on their technology. “They have to transform,” he says. “There are disruptive models out there–not only distribution strategy but on the business model side–and [insurers] need to [invest] relatively quickly despite it being such a difficult environment.”

Larger carriers may have more trouble making those changes than their regional counterparts, indicates McShea. “There's a level of complexity that tends to bog down the larger companies,” he says. “It degrades their supposed advantage of scale.”

For years, larger insurers have bragged about the advantages of economy of scale in the marketplace, but McShea points out if carriers don't have effectiveness and efficiency on the technology side, they are going to be at a disadvantage, no matter what their size.

“A midmarket company with a single system, data that is relatively clean, and alignment in its business model is going to have an advantage over a [less well-run] larger player,” says McShea.

– Robert Regis HyleT