Insurance companies are considered to be laggards in the adoption of digital technologies when compared to other players in the financial services industry especially the banks. Based on this context, The Chartered Insurance Institute of Ghana (CIIG) recently organised its first public lecture on the theme “How Digital Insurance Can Improve Insurance Penetration in Ghana”. According to the B&FT publication dated Monday, 12th March 2018, various speakers at the public lecture talked about the need for insurance companies to leverage digital technology to help improve insurance penetration in the country. The adoption of digital technology will impact underwriting, claims management and other areas of an insurers’ business operations. However, one area where insurers’ will benefit immensely from the adoption of digital technology is the distribution model of insurance companies. The distribution model of an insurance company performs a significant role in the operational activities of an insurance company. Unfortunately, the limited use of distribution channels by players in the insurance industry has contributed to the low uptake of insurance products in the country. As a result, only 4% of the total adult population in Ghana have access to insurance products (Finscope, 2010). Accordingly, to improve the uptake of insurance products, insurance companies will have to shift from a focus on traditional channels of distributing insurance products to a mix of both traditional and new technology driven channels of distribution. The purpose of this write up is to examine traditional distribution models in the insurance industry as well as explore the need to adopt technology driven distribution models to help improve the uptake of insurance products.
Traditional Channel Distribution Model
Traditionally, the distribution model of insurance companies in the country is dominated by individual insurance agents and insurance brokers. Whereas individual insurance agents are the dominate channel in the life insurance market, insurance brokers are the dominant channel in the non-life or general insurance market. For instance, in the life insurance market individual agents contributed 63% of the annual premium income whilst insurance brokers contributed only 9%. With respect to non-life business, insurance brokers’ contribution to the premium income was 36% and individual agents contributed 30% (NIC Annual Report, 2015). Most insurance companies in the country operate with the idea that having a large number of individual agents’ will translate into an increase in the sales of insurance products. Thus, insurance companies recruit and train a large number of individual insurance agents to distribute their insurance products. For example, as at the end of year 2014, there were 5,674 individual insurance agents licensed by the National Insurance Commission (NIC) in the country (NIC Annual Report, 2014).
Furthermore, there were 78 insurance brokers’ in the country as at the end of year 2016 (NIC Annual Report, 2016). Due to the significant premium income contributions by insurance brokers’, a number of insurance practitioners often argue that the non-life or general insurance market is an insurance brokers’ market. For instance, according to the NIC Annual Report for 2016, insurance brokers’ received revenue amounting to GH¢72.5m representing a growth rate of 12%. To help minimise the dominance of insurance brokers’ in the non-life or general insurance market, some non-life or general insurers’ have experimented with the model of putting more boots on the ground by recruiting and training a large number of individual agents to distribute general insurance products. Likewise, to help minimise the dominance of individual agents’ in the life insurance market, a number of life insurance companies have also experimented with the model of partnering with some insurance brokers to distribute life insurance products.
Multi-Channel Distribution Model
Besides these two dominant traditional distribution channels, some insurers’ in the country have shifted focus to a multi-channel distribution model. These insurers’ have adopted alternative models of distributing insurance products such as bancassurance or partnerships with banks, workplace/paypoints or employer marketing, corporate agents, automated call centres, retail outlets or supermarkets, branch offices, churches, partnership with funeral homes, affinity groups, partnerships with non-governmental organisations (NGOs) and partnerships with telcos/mobile network operators (MNOs). For instance, the total number of bancassurance partnerships in the country stood at 26 by the close of year 2014 (NIC Annual Report, 2014).
The multi-channel distribution model allows insurance companies to distribute insurance products to a larger number of customers as well as penetrate new market segments leading to an improvement in the uptake of insurance products. For instance, in the life insurance market the bancassurance distribution channel contributed 7% of the annual premium income whilst the MNOs/telcos distribution channel made a contribution of 2%. With respect to the non-life or general insurance market, bancasssurance distribution channel contributed 1% of the annual premium income whilst the mobile network operators (MNOs)/telcos distribution channel made no contribution (NIC Annual Report, 2015).
Omni-Channel Distribution Model
Due to the emergence of new breed of technology savvy customers’, new models of distribution such as omni-channel distribution is gaining traction in the insurance industry. This new breed of tech-savvy customers want to be able to access insurance products using distribution channels that are convenient to them. For instance, whereas some customers prefer to access insurance products through an individual agent or insurance broker, other customers prefer to access insurance products through banks or digital distribution channels such as mobile devices (i.e. smartphones, tablets). The omni-channel distribution model is an expansion of the multi-channel distribution model. However, with the omni-channel model, insurers’ will have to combine or integrate the traditional and the new technology driven distribution channels to distribute insurance products. The combination or integration of the traditional and the technology driven distribution channels will enable seamless sharing of customer or transactional information irrespective of the channel being used by the customer. For instance, a customer can report an insurance claim by contacting an automated call centre and thereafter follow up on the claim through other available channels such as email, twitter, facebook, etc without the need for the customer to resubmit or provide the insurance claim information again.
Insurance companies in the country will have to reengineer their distribution models to meet the demands of the new breed of digitally or tech-savvy customers. To wit, insurers will have to adopt and leverage the potential of the new technology driven distribution channels. For instance, as at the end of September 2017, total mobile voice and data subscriptions stood at 37,445,048 and 22,865,821 representing a penetration rate of 130.91% and 79.94% respectively (NCA Report, January to September 2017). In addition, there are over 35 million smart devices in the country (Daily Graphic, September 11, 2017, Page 85). Clearly, this indicates an immense untapped opportunity for insurers to adopt and leverage mobile technology to distribute insurance products. For example, mobile technology can be used by customers to pay their insurance premiums, access information on their insurance policies, receive updates on their insurance policies as well as follow up on the progress of an existing claim. Further, insurance companies can equip individual agents with digital tools (i.e. smartphones, tablets) to help improve engagement with customers and also sales productivity of the sales agency team. For instance, a leading multi-national life insurance company in the country experimented with this model some years ago. Individual agents equipped with smartphones and mobile phone units at the end of their daily field operations were required to call or send sms messages indicating their daily sales activity ratios to their sales managers. The submitted daily sales activity ratios were then analysed and used to monitor as well as manage the sales agent’s daily, weekly and monthly sales productivity.
Furthermore, key findings from a number of research studies indicate that customers are spending a lot more time on the internet than on any other media. Thus, new digital channels such as mobile apps, insurer’s website, youtube, twitter, linkedIn or facebook accounts are being used to engage with customers as well as distribute insurance products to digitally or tech-savvy customers. For instance, some banks as part of their bancassurance digital strategy are using mobile apps for the payment of insurance premiums and for the uptake of bancassurance products. Further, mobile apps are also used for insurance quotations, policyholder services and insurance claims submission. Additionally, insurers can leverage new technologies such as artificial intelligence, machine learning and data analytics to gain more insights into customer needs and desires. This information gathered can be used to engage customers as well as improve the uptake of insurance products. Lastly, the new digital channels make it easy for insurance companies to have access to market segments where previously they did not have any physical distribution presence.
To summarise, early adopters who combine or integrate traditional distribution channels with the new technology driven distribution channels stand to benefit from stronger customer engagement, customer retention, customer loyalty, improved uptake of insurance products as well as secure a competitive edge over their competitors in the insurance industry. However, the digital laggards face the risk of being overtaken by competitors or new entrants in the insurance industry who are more technologically driven. Finally, the combination of traditional distribution channels and the new technology driven distribution channels will help in deepening insurance penetration in the country.
The writer is a certified insurance & marketing practitioner and a member of the Governing Board of CIMG.
Writers email: [email protected]