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Insurers finally rethinking product push, says McKinsey

Bernhard Kotanko says digitalization is ending insurer’s bias to maximize short-term commissions.



Bernhard Kotanko, McKinsey

Insurance company executives talk about the benefits and needs of protection and life insurance but when it comes to making money, they have always relied on the hard sell.

Digital transformation may finally, finally, be creating a meaningful change, says Bernhard Kotanko, senior partner in Hong Kong at McKinsey & Co.

The consultancy has surveyed agents and consumers in mainland China, where digitization is the most advanced in the region. It has found customers now expect personal service, and that digital tools make this approach feasible for agents.

“We can visualize a new distribution model that is a hybrid,” Kotanko said. “Sixty to eighty percent of interactions and learnings are digital, using social media, which leads to personalization.”

This creates a virtuous cycle: better products for customers, better feedback and leads for salespeople, and more insightful data and overall customer satisfaction for insurance companies.

Must insurance be “sold”?

The industry is not there yet, but COVID-19 has speeded it toward this happier future, with China about two years ahead of the rest of Asia Pacific.

If Kotanko is right, the rise of personalization marks a fundamental change in how the industry operates.

“Insurance is sold, not bought,” is an industry mantra explaining that hardly anybody researches and buys insurance on their own. Someone – usually an agent or a wealth manager at a bank – has to focus their efforts on getting a customer to purchase insurance.

These agents are incentivized to maximize commissions. Their relationship with a customer often begins with schmoozing and ends once they’ve made the sale. They focus on pumping the highest-commission products possible, which are often complex life policies overstuffed with riders, or structured products in an insurance wrapper and very high hidden fees.

We are seeing a turning point from product pushing to personalized, needs-based distribution

Bernhard Kotanko, McKinsey & Co.

The insurance company enjoys the revenues from this model but they don’t have a relationship with the end customer – nor much data. And the customer’s next touchpoint with the insurer is probably filing a claim, which may not end happily.

Digital transformation has suggested new business models are possible, but industry executives have been skeptical of pure digital sales. A new crop of all-digital insurance startups are out to prove them wrong, but Kotanko’s research suggests agents and bancassurance will remain relevant.

From push to personalization

What is changing is how they are using technology to engage with customers in a new way, and leverage that into a different kind of sale.

“We are seeing a turning point from product pushing to personalized, needs-based distribution,” Kotanko said. Up to 80% of customers in China expect an agent to care about their personal circumstances, and the majority express disappointment in pushy product-based approaches.

McKinsey declined to make its study available to DigFin.

Kotanko says COVID-19 has forced agent interactions with customers to go digital. In China, interactions via social media and WeChat are up 70% from last year, with most consumers and agents finding this convenient.

“This is here to stay,” he said. “Agents can now do ongoing engagement at a low marginal cost.”

The same is happening across the region, from mature markets such as Japan to emerging markets like Indonesia and Thailand, but at varying speeds. Moreover, other markets don’t have the omnipresence of a single social platform like WeChat, which is used by businesses and consumers alike.

Other markets will follow the Chinese model because it’s in everyone’s interest.

Insurance companies gain a better understanding of their customer and can increase client retention. They get the metrics to justify the large investment required to build digital infrastructure.

Agents, by personalizing offerings, get more chances to upsell or cross-sell, and they boost their word-of-mouth endorsements. This provides them with more sustainable revenues.

Customers get more suitable products and the confidence that they are spending on a genuine need. The hope is customers have better informed expectations when it comes time to claim.

Kotanko says there are two hurdles to realizing this optimistic outlook for digital insurance.

First is regulation, which could impact partnerships, data transfer, and so on. The second is for insurance companies to manage their relationships with agents: a digital model brings benefits to professional agents who are adept at using social media to grow big networks. It means the opposite for agents that rely on personal connections and low-value sales tactics to notch quick wins. If a carrier is operating with too many low-quality agents, it will need to either find a way to placate them or take the risk of alienating the force.

What the insurers can’t afford to do, though, is to sacrifice digitalization.

“Executives face challenges of agency size and quality,” Kotanko said. “They can transform the salesforce they have, or build a new one. This decision over the next decade will determine the industry’s winners and losers.”

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