Interviewer’s Note: Ernst and Young recently released a study on optimizing the agent network for technology adoption in the insurance space. The following is an email Q&A with Melanie L. Henderson, executive director in the Advisory Services practice of Ernst and Young. She has more than 20 years of consulting experience providing business strategy, capability development, and process improvements to financial services clients.
IB: Please enumerate and expound on the pressures that are currently bearing down on an insurer’s margins.
MH: They are:
- The extended low-interest-rate environment has placed increased pressure on operational results to carry overall insurer margins
- Spending on increased regulatory actions has been a drag on margin for many insurers
- The need for increased advertising spend to remain relevant has impacted many personal lines insurers
- The advisor model continues to be an expensive distribution system with a high level of churn
- New emerging risks and new methods of avoiding or mitigating risks (e.g., IOT lowering demand)
IB: What are the primary reasons behind the increased competition for top producers in the agent pool?
MH: Demographics trends working through the agent force means a large number of agents are retiring or nearing retirement and they are not being replaced with younger agents; younger agents are operating in a less advantageous economic environment than were agents starting 30 years ago. Given the high churn of agents and the associated costs to maintain the system, insurers with a captive system want to identify agents that are most likely to have success in their system (these tend to be experienced agents that have a proven record of success); insurers with an independent system are looking for advisors with a proven history of success. Consolidation of agencies means that agency management is focused on individual producer performance.
IB: How can organizations evolve to deal with current trends in productivity and their attendant pressures? What are their situation vis-à-vis insurtech firms?
MH: Adoption of new methods and technologies requires a commitment from the C-suite, an influx of talent that is able to architect solutions that utilize the current trends and that the organization has early success that it can build on. Largely, these are issues of culture, as there needs to be a strong enough culture to make the change, be willing to accept there will be productive failure along the way and that it will require hard work and a critical eye on current practices. Organizations that are effective at this are leveraging learnings from the current state to advance in the future state.
Insurtech is an area that insurers are keenly focused on, yet the approach varies between insurers. Some are aggressively investing in insurtech firms, others are actively partnering and running experiments, yet others are monitoring from arms-length to see what areas develop before committing. In general, insurers understand that insurtech will have an impact on their business model, but what that impact will be and where in the value chain it will occur is still being determined. can attack narrow areas of high value (certain products) without having to carry the wide overhead needed to support the full enterprise.
IB: What kind of qualifiers should be used to measure effectiveness as applied to an insurance agent’s performance?
MH: In the most generalized terms effectiveness of agent performance is production – as these are sales roles. The specific measures of success than an insurer adopts or the behaviors they are looking to drive in the advisor force are dependent on the insurer’s strategy – this may be a bias towards cross-selling, or sales to certain client segments (e.g., high-net-worth individuals, millennials, etc.), or a lower consumption level of insurer resources. Key metrics are no longer just sales. Satisfaction, retention, loyalty, cross-selling, customer lifetime value, etc. are now just as important.
IB: How can firms improve the ease of doing business in the context of an agent’s workflow to improve performance?
MH: Examples of ease of doing business might include intuitive, user-based designed agent portals including pre-fill capabilities, predictive typing, etc. This can include a clear expression of appetite from insurer to the market so that advisors are clear on the types of risks that are most likely to receive accelerated underwriting treatment. Overall, we must take pure processing work away from agents, automate it and let agents spend more time selling. Segment agents also need to identify differing needs and preferences, and enable processes to modify interactions according to segment.
Q: How can agent engagement be leveraged to improve overall performance?
MH: Engaging advisors in the design of support systems (e.g., technology, process, information) inevitably results in an improved end product for the advisor as well as greater adoption. Evolving the relationship with advisors to a partnership will enable a greater level of intelligence for the company as they are better able to leverage insights from the advisor network. This in turn will enable insurers to develop experiences and support systems that best support advisor success.
Q: In broad strokes, what kind of senior management psyche and appetite for change do you need to effectively evolve your organization to optimize agents in the organization?
MH: A commitment to analytics and successful adoption requires senior management to have a level of analytics literacy to enable them to debate critical issues drawn from the data in order to make informed decisions. There also needs to be recognition that distribution channels are changing (direct options, agent demographics, etc.) and a willingness to risk current revenue for future market share and success.
Q: How do you see the human-AI dynamic panning out as more sales and service functions become automated in insurance?
MH: As process automation expands an opportunity is created as human needs shift. Repetitive tasks and processes are well-suited for automation providing consistency in outcomes from those processes. This greatly aides the humans consuming these results are the results will be predictable. At the same time, humans are then freed up from these tasks to focus on higher-level value added processes. AI will drive new agent enablers, e.g., next action recommendations, cross-sell likelihood, next product, prompts for service with customers likely to attrite, etc.
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