Evaluating Distribution Channel Options for Individual Insurance Products, Part 2: Call Center and Digital Platform Sales Channels
By Art Lewis
NewsDirect, October 2022
As discussed in my previous article (NewsDirect, August 2022), selling a product through multiple channels requires understanding the strengths, weaknesses, and characteristics for each channel as well as the interactions between them. Even with this understanding, finding the optimal mix of channels isn’t straightforward. It varies by product type, target market, channel management effectiveness, competitive environment, and companies’ existing resources and strategic priorities. To give some insight into this challenge, I’ll provide a high-level description and some considerations of the major channels regardless of product category (e.g., P&C, Life, Health). The rapid changes in distribution due to technology, merging of the channels, and consumer preferences are adding complexity to the evaluation but is beyond the scope of this article.
Marketing is a critical component for both call center and digital platform sales. The means of obtaining a lead become a consideration as the member characteristics and costs vary between direct mail, print, digital, television, and other forms of advertising. In all cases, the effectiveness of the marketing strategy will drive membership characteristics and total sales.
Call centers and digital channels are heavily intertwined. Some call centers have websites that include product information and are a component of their overall marketing strategy, even though products can only be purchased over the phone. Digital channels can sell a product without any human interaction, but they may have agents available for prospect support. Different types of distributors within these two categories can also create confusion. Insurance marketplaces, exchanges, eCommerce sites, etc., are frequently considered channels in themselves due to their unique characteristics. For purposes of this article, I’ll define distribution channels based on who sends the application to underwriting/enrollment since this provides a general foundation for all channels. Also, this article is limited to sales channels, which employ licensed insurance agents. Companies focused on generating and selling leads are common but are not discussed.
Call Centers Sales
When call centers have centralized and sophisticated systems, management has a great deal of insight into their operations. They can easily track call abandonment rate, time to answer, time spent on sales activities, closing rate, and many other statistics. Since most calls are recorded and can be reviewed by managers, oversight is very strong. Member satisfaction and regulatory compliance can be tracked, which helps to identify training needs and improve overall efficiency and effectiveness of the sales process.
Since there is no real personal relationship between the call center agent and the member, products with a long sales process and products that are extremely complicated can be challenging. Thus, this channel is most effective for members who have already determined their general coverage needs.
Insurer Call Centers
All agents are employees of the insurance company and while compensation includes sales incentives, agents usually receive a salary and company benefits. The insurer performs all marketing and there is strong system integration between the call center and insurance operations. Acting as “captive agents,” they sell the insurer’s products without comparisons to their competitors’ product options, making the company less exposed to changes in the market.
Since insurers run the call centers and agents are employees, maintaining adequate staffing to meet service requirements can be a considerable challenge. Medicare products, for example, require a much larger number of agents during open enrollment. Often, management will overflow calls to a retained outside call center, which helps address the peaks and valleys of open enrollment. Insurers’ call centers may also utilize retained call centers for disaster planning (weather, systems issues, power issues, etc.), which enables them to address problems quickly. Evaluation, system quality, training, and management of the independent call centers become another expense and potential quality concern for the company.
Independent Call Centers
Independent call centers, acting as insurance brokers, will employ or contract with insurance companies to offer their products. Like independent agents, independent call centers offer products from a variety of insurers, which satisfies consumers’ preference for product choice.
From the insurers’ perspective, contracts with the call centers need to be negotiated, system integrations need to be implemented and maintained, product training provided, and oversight performed. However, the flexibility to change their strategy and budget commitment, and increase access to different markets can be a significant benefit.
Digital Sales
As previously defined, digital distribution channels can sell products with no human interaction, though they will frequently have call center agents available to assist prospects. The complete reliance on technology through the sales process makes this channel highly scalable and can drive down acquisition costs. Individuals are increasingly preferring this channel for consumer products.
In insurance, the question is what type of products will be purchased like a typical consumer product. Medical products in the individual consumer market have largely been commoditized, which has made them successful in this channel. However, despite standardized benefits, success in the Medicare Supplement market has lagged initial expectations. The shift to digital channels will certainly differ by target market, but knowledge of product characteristics and options as well as product complexity and potential uses, also need to be considered. For example, products that are a component of an individual’s financial and retirement planning are less appropriate for this channel. Variable universal life products certainly fall into this category due to their complexity, investment decisions, and potential uses. More commonly known products, such as annuities and long-term care products, should fall into this category as well.
Artificial intelligence applications continue to become more effective at providing support previously performed by humans. The services provided and the length in time it will take to change consumer preferences are difficult to predict and will likely differ significantly by product category and target market.
Insurer Digital Sales Platforms
While pure digital sales may be available for some products, insurers’ platforms will make other distribution channels readily available. This is particularly the case for insurers with captive agency channels, where the platform can primarily focus on generating leads for their agents.
Independent Digital Sales Platforms
Companies providing digital platforms contract with multiple insurers. The site contains product line educational material, quoting, and usually employ agents to sell a product directly at the preference of the prospect. As independent businesses, each will have its own strategy, which can frequently be beneficial to the insurer. For example, some might focus product options and their marketing strategy on millennials. Others may focus on new retirees of large group employers, where retirees benefit from multiple product options while employers benefit from easier administration and lower expense.
For insurers, the major issue with independent digital channels is that product comparisons are driven primarily by price. Term life insurance options may focus only on face amount, product term, and premium by rating class with little to no information on underwriting methods and criteria. More complicated products, such as health insurance, illustrate a different challenge. Consumers frequently lack a clear understanding of even high-level product characteristics. Confusion over what services are covered under copays, and how individual and family deductibles, coinsurance, and out-of-pocket limits work together is common. Such things as understanding an insurer’s criteria for determining claim eligibility is simply not available online. Prices are easy to compare and can drive product selection. As a result, premium competitiveness can have a significant effect on sales, particularly between insurers with similar name recognition.
Distribution Strategy—Bringing it All Together
Before evaluating the overall distribution strategy, each channel should be reviewed on its own. Poor sales or experience in a particular channel may result from issues that can be addressed, such as a group of distributors submitting lower quality policies, underperforming marketing strategy, or insufficient product access.
Comparing experience from different channels presents additional challenges. Consumers will frequently access different channels during the sales process. Digital sites can be used for education while the sale occurs in the call center or with an agent. Reducing investments in one channel may inadvertently affect the success of another channel. Also, each channel will have its own acquisition costs, quality of business, written premium per policy, retention, loss ratio, and ROI. Considering one attribute can frequently be misleading. For example, agent channels have a high acquisition cost. However, the higher quality of business, larger premium, and better retention may well offset this additional cost. Even if a channel has a lower ROI than other channels, a large number of sales will help cover fixed expenses.
Conclusion
Distribution strategy in many companies is an afterthought. The best companies utilize sales and distribution in their product development, planning, and execution. Finding the optimal distribution strategy, though, is neither a straightforward calculation nor can be done in isolation. Several different functions in the organization, and external sales entities, can provide insight and considerations when developing the initial assumptions as well as identifying appropriate adjustments. Is the existing infrastructure sufficient or are investments required? What channels should be promoted? What channels should be scaled back? How should this be done? The challenge is to evaluate the channels and meld the options to maximize overall ROI. And, of course, evaluate how the continued changes in consumer preference and technology will change the assumptions.
Statements of fact and opinions expressed herein are those of the individual authors and are not necessarily those of the Society of Actuaries, the newsletter editors, or the respective authors’ employers.
Art Lewis, FSA, MAAA, is a member of the SOA’s Marketing and Distribution Section Council. He can be reached at artlewis425@gmail.com.