Strategic Issues in Insurance Distribution Management
Carriers use a variety of techniques for growing the book, and most consider distribution management a key component of their growth strategy. They are expanding channels, adding distributors, moving into new territories, and working to optimize their existing channel to improve customer acquisition and retention.
Some carriers are investing in improving the servicing of distribution channels. Others are focused on managing the compliance aspects of distribution management — assuring the distributors have the right licenses, and that state appointments are made in a timely manner. Many carriers are concentrating on using compensation tools and techniques to more effectively stimulate production.
To understand what top carriers are doing in this area, Celent conducted a survey around this topic. The goal was to understand how the carriers are organized to manage the distribution channel, what types of techniques they use, how effective those techniques are, and what challenges they face.
In most organizations, a formal Distribution Management organization has primary responsibility for channel management. Managing relationships and compliance are seen as the biggest issues they face.
A wide variety of compensation techniques are used by carriers, and most say they get value from those programs, although carriers report that it is more important to calculate compensation accurately than to assure compensation is effective at driving desired business. Some techniques such as incentive compensation and contests may only be available to top tier or qualifying agents, but receive mixed reviews on their effectiveness. Only 25% of those offering incentive compensation programs see them as effective. “Having an incentive compensation program isn’t highly effective, but not having one would be even worse,” said one carrier.
Most carriers rely on a variety of systems to manage compensation, including Excel, and find efficient calculation and distribution of compensation to be quite challenging. For many, the ability to administer a compensation program easily is the key driver as to whether the program will be offered. While they may wish to utilize a particular technique, their technologies create barriers.
Compliance is another challenging area with many carriers in the early phase of considering additional automation. Fewer than half of carriers have automated any of the major processes: validating licenses, processing an appointment, or providing self-service to distributors. Those that have automated the processes generally report them as delivering value.
“Managing the distribution channel requires discipline in a number of areas — from managing the day-to-day relationship, assuring the distributor is in compliance with the licenses and appointments, and strategically managing compensation. However, carriers face significant challenges in performing these tasks efficiently,” says Karlyn Carnahan, a research director for Celent’s Insurance practice and author of the report. “Carriers looking to improve distribution effectiveness use technology as a strategic differentiator.”
This report contains nine figures and one table.