Comparing Insurance Distribution Channels

eBook

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“Distribution channels in the insurance business sector
are changing rapidly. This isn’t surprising considering
technology changes even more rapidly, and consumers
change along with it. If you would like to know more
about what this means to risk analysis and fraud

”
detection, you should read this e-book. Will the cloud
beat the agent, or will they be joining forces?”

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TOPICS
2.

1. INTRODUCTION PAG. 2
Why you should read this e-book.

2. DISTRIBUTION IN THE INSURANCE PAG. 4

BUSINESS SECTOR
Real time internet and traditional distribution. 5.
3. SOPHISTICATED SELF-SERVICE PAG. 6
Do it yourself and let devices do it for you.

4. RISK ANALYSIS AND RISK MANAGEMENT: PAG. 8

NO BIG DIFFERENCES
The same systems in all channels, follow-up is different. 6.
5. SPEECH ANALYSIS PAG. 9
Sophisticated technique in the personal channel.

6. REALTIME PAG. 10
Ever more rapidly in the direct channel.

7. COMPETITIVE CHANNELS PAG. 12 8.

Speed and innovation make the difference.

8. RISK SELECTION PAG. 13

Automated risk selection.

9. SUM UP PAG 14
Conclusion.

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2. DISTRIBUTION IN THE INSURANCE
BUSINESS SECTOR
Traditionally, ‘insuring’ has been a complicated subject for businesses as well as private individuals. More often than not, they aren’t sure
which product of which insurer suits them best. There are so many products, and quite often they differ very little from one another. That’s
why up until recently many entrusted reliable experts or reliable expert agencies with the search for the product that would suit them best.

Not only did this apply to the initial selection of the product, it also applied to keeping the
insurance portfolio up-to-date. Take for instance periodically adjusting the insured value
“When it comes to complex
of a building or inventory, or checking whether a permanent health insurance still suits the products, clients rather
living conditions. Apart from that, it was a reassuring idea that in case of a claim it would
only take one telephone call to the expert and he/she would deal with the insurer to settle have an expert look for an
the claim. The role insurance intermediaries played therefore was substantial, even in case
of very common types of insurance such as a motor vehicle insurance, residential premises appropriate insurance for
insurance and travel insurance. them.“

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 CHECK OUT:
Major change
Meanwhile this has changed profoundly
with the vast expansion of the internet,
the speed and capacity of mobile devices,
the increasingly sophisticated possibilities
of retrieving, analysing and processing Utilizing Data to Effectively
data (virtually) real time, the power of Fight Fraud
our mobile applications (apps) and the
consumer’s declining willingness to pay
extra for tailor-made advice for relatively
simple insurance products. These and
other developments are causing a major
shift within the distribution channels.
Advisors
Personal advisors and agencies capable
of dealing with everything are still there,
but they mainly play a part in the advice
on and the management of the more
complex insurance products, such as
income protection insurance and pensions
or insurance for entrepreneurs and their
businesses. In their advisory practice,
insurance advisors make intensive use of
technology when selecting appropriate
products and screening clients.

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3. SOPHISTICATED
SELF-SERVICE
We have meanwhile gotten used to using the internet
or in some cases even the telephone when it comes to
choosing and taking out a common – mainly general –
insurance. This also applies to the handling of claims.
The insured will do it himself/herself and is guided
and advised by automated systems. The interface is a
sophisticated website, to be operated via all devices.
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On Demand
Take for instance apps which, when at an airport, ask you
whether you would like to take out a travel insurance for the
duration of your trip and which, once you’ve reached your
destination, point out certain risks to you and optionally even
temporarily adjust your cover to that risk. This works on the ba-
sis of subscriptions that can be switched on and off. This creates
increasingly more possibilities of directly and temporarily insu-
ring specific goods. Take for instance the camera that is always
safely stored in the cupboard but will now be taken along on a
trip for a few weeks.
It all works on the basis of the interactive possibilities your device
provides, such as localization and the analyses that are subse-
quently made based on a large quantity of experience data rela-
ting to the location where you are and data about goods, such as
the camera in the example, and information about the insured
himself/herself of course.
The combination of information results in a virtually real time
advice, fully tailored to the insured and his/her situation. Especi-
ally technology providers such as TROV, Insureapp or Metromile
come up with such initiatives and as regards the cover cooperate
with established insurers. The other way around also occurs: insu-
rers that like to appeal the target group of the ‘millennials’ (born
after 1980), cater to their preference for direct and mobile and
together with a technology provider develop an individual label.
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Internet of Things
Step by step we are moving onwards. The ‘Internet of Things’ is developing
like lightning. Appliances at home, in our surroundings and in our cars are
capable of registering and sharing information and as such assist in asses-
sing risks.

For instance, a car can brake of its own accord near an obstacle, or swerve, but
it is also able to communicate with emergency services and road assistance
in case of an accident or a breakdown. The cause and the circumstances of an
accident can be registered and shared with the authorities and the insurers. “The possibilities
In this way it is even possible to monitor and influence the road conduct of
drivers, for instance by alerting the driver that he/she is repeatedly speeding of IoT are vast
or making dangerous manoeuvres. This may also have consequences for the
insurance cover, the premium and the excess. and growing at
Appliances in the house help making our home more efficient and comforta- high speed.”
ble by monitoring energy consumption, switching off appliances and con-
trolling the heating system. Appliances can also help making a home safer,
and thus prevent claims, for instance by detecting who are in the house and
whether they belong there at all and taking action if the person present is not
allowed to be there. Appliances can also warn when a window has been left
open or a door hasn’t been locked or detect that the central-heating boiler
needs maintenance or raise the alarm when smoke is detected or when the
resident lies motionless on the floor. These are but a few examples, the possi-
bilities are vast and growing at high speed.

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4. RISK ANALYSIS AND RISK MANAGEMENT
NO BIG DIFFERENCES
From an automated fraud control perspective it seems that the online distribution channel is growing very rapidly. However, this may
be a slightly tricked perspective, as many insurers are (still) multichannel and develop their online channels in addition to the personal
channels. To automated risk analysis and fraud detection this doesn’t make much of a difference as most insurers organize them in the
same way for both channels.

Automatic response Human response

The way in which the information resulting from the automated
analysis is being used, may differ per channel. In the one channel
it may result in an automatic response, such as immediate
underwriting of the risk offered, adjustment of the proposal based
on for instance claims history, or rejection.
It is also possible that the system requests specific ‘human’ follow-
up actions. If in the context of assessing a business insurance
application, the system for instance finds that the board of the
company in question has changed more often than is common in
the sector in question, the system may recommend to have the
application file assessed by a senior underwriter who has experience
in that specific business sector.

Likewise, in case of a claim the system may respond to specific

CHECK OUT: indicators or combinations of indicators. Take for instance a crash
involving the insured only, which crash takes place late in the
evening during the weekend. Maybe it’s just bad luck, but there
may more to it, such as excessive use of alcohol. In these situations
and many others, the automated handling will be interrupted and
a human claims handler will take over the assessment. In the above
example of the crash, this will probably be a telephone call with the
insured to find out the underlying causes of the crash. In that case
How to Build a Profitable Portfolio speech analysis may provide more indications. In that way the direct
as a 100% Online Insurer? and the personal channel blend to the benefit of the insurer.

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5. SPEECH ANALYSIS
Speech analysis can only be used in the personal channel during a telephone
conversation with the applicant of an insurance or with the insured who has
submitted a claim. The system is capable of detecting signs of unnecessary tension,
hesitation, nervousness and the like and can include this in the risk analysis. A
nervous client may for instance be a reason for further verification and checking
whether there has ever been question of for instance rejection due to fraud or non-
“Automated systems
payment. help confirming the
The insured may also act tense during a conversation about a claim. This may be a
reason to have a closer look at the claim. Naturally, speech analysis will not result in a
claim handler’s gut
decision immediately. However, it may very well be the cause of further investigation
before taking a decision.
feeling.”
Sometimes speech analysis confirms the ‘gut feeling’ of the claims handler. It helps him/
her to decide whether to take a closer look at the claim or to transfer it to the Special
Cases Department.

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6. REALTIME
In the context of all this, the above-mentioned new development
of ‘on demand’ insuring, creating a close cooperation between
technology providers and insurers, is a very interesting one. In ‘on
demand’ insuring, speed and accuracy of the analysis are crucial. Not
only when taking out a subscription, but time and again, as new risks
can be offered at ever changing locations.

The characteristic of ‘on demand’ is that a cover is provided immediately

for the risk. For instance based on the location, the user receives the real
time signal that he/she has not yet activated his/her travel insurance, or
that he/she needs to watch out as he/she is in a neighbourhood where
many pickpockets are active, or that he/she is in a car and the motor
vehicle insurance needs to be activated.

An object – for instance a camera – can also be offered for insurance via
an app. Based on the available data in the cloud, the system determines
the value and the risk, and the owner immediately receives a premium
proposal for the requested period, after which he/she simply ‘switches
on’ the insurance.

There are boundless possibilities, and this is only the beginning of it all.
The system, linked to a smartphone, is able to get to know its owner’s
lifestyle and based thereon make proposals and assess the risk.

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INVESTING IN TECHNOLOGY
Insurers invest a lot in technology. This is crucial if they want
to continue playing a significant role and not end up on the
side track named Extinction. However, there are differences
depending on the size of the insurer. A few examples from
the US:

- 60% of the major insurers started or will start replacing the

policy administration system in 2018, the rest will be introducing
significant adjustments. 40% of the small and medium-sized
insurers will replace the system, 20% is going to adjust it 40%
will leave things as they are.

– About 30% of the major insurers will replace its Predictive

Analytics and Modeling system, 10% is going to adjust it and
50% will maintain the current system or won’t be doing anything
in this area for the moment. 40% of the medium-sized insurers
will replace this system and the rest will introduce significant
changes. To small companies this is less of an issue. About 30%
won’t be doing anything in this area, about 20% will introduce a
new system and 10% will adjust the current systems.

(source: Celent 2018)

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7. COMPETITIVE CHANNELS
Internet use via mobile
devices worldwide

The various channels cater to different target groups and are particularly suitable for specific
products. Personal advice in complex products still is indispensable. And yet the channels
considered in terms of target groups blend more and more. Using the internet has become a part
of our daily routine. At first mainly for exploring things and to look around, but currently more and
more for purchasing things, including an insurance.

Mobile use of the internet is on the rise. In 2012, 40% of the internet use toke place via mobile devices.
By now globally the average is as much as 75%. Spain takes the lead with 85%. Hong Kong and China
follow with 79% and 76%. In the US this is 74%.

The use of mobile devices therefore increases within each age bracket, not just with young people.
This could mean that the ‘on demand’ channel is promising. In addition to price, competition can
mainly be on speed, resourcefulness in terms of insurance proposals and innovation in terms of
applying the information that can be generated and linked to other sources. Naturally, security is of
the utmost importance, as the insured shares private information and makes payments.
2012 2018

Internet use via mobile devices per country

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Channels: Online vs Personal =
Efficient vs Expensive?

Spain Hong Kong China US 12

8. RISK SELECTION
During personal contact with the insured via an agent or an independent
intermediary, there is an interaction between the personal assessment and the
automated assessment of the risk or the claim. When making his/her assessment
the agent can be supported by automated risk analysis, but he/she can certainly
influence it. He/she can take his/her knowledge of the personal circumstances of the
insured or person applying for an insurance, into consideration.
“Decisions are made
In the automated risk analysis via the direct channel it’s quite different. Based on the
automatically and at
criteria the company uses, the system is able to take a decision very quickly. In some
cases the system will recommend that a human should have a look and therefore
lightning speed on the
postpone the decision. basis of data.
In ‘on demand’ insuring that won’t be possible anymore because the object is to take a
quick decision at all times. It therefore has to operate based on large quantities of data
from a large number of private and public sources.

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9. SUM UP YOU MAY ALSO LIKE
In this e-book we discussed a number of developments in
the field of the distribution of insurance products. We
found that:
How Insurers are in Control of Risks at Underwriting
1. The (old school) personal advise is still very much alive
and is supported more and more by technology. It is important to have a clear picture of
2. The relevance of the internet and taking out an potential customers before they enter an
insurance and reporting claims yourself is still on the insurance portfolio. Insurers should decide
rise. on the amount of risk they are willing to
3. Mobile applications based on highly sophisticated take in. In this ebook, 4 insurance com-
technology, are the new trend. panies share their experience on the way
4. In each of the channels, considered from the point of they are in control of risks at underwriting.
view of society but definitely also of the consumer,
automated risk analysis and fraud detection is
indispensable.
5. Nearly every company invests in automated risk analysis
or will (have to) do so.

The Biggest Fraud Challenges for Insurance Companies

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