In the future, where will you buy your insurance? Or to put it another way, if you are an insurer, how will you sell it? We have already seen the false dawn of total disintermediation when we thought that brokers would disappear and everyone would satisfy all their insurance needs by communicating directly with the insurer. I once heard it said that the old adage: ‘life insurance is bought not sold’ was outdated and that in the future a society of well-informed and risk-savvy people would make their own decisions and be fully covered for all their life and health needs. Well, that hasn’t happened yet and doesn’t look imminent, but the landscape has changed and it is not just our willingness to make our own decisions that has increased but also the necessity. I was thinking of this when considering a speech given by Drew King of GenRe at our recent FINEOS customer event in Washington about research they had conducted into the individual’s perspective on the phenomenon of insurance exchanges in the US, (Insurance Exchanges – An Individual’s Perspective Contact Marcy Updike firstname.lastname@example.org ). These online marketplaces have been around for a long time but have come to recent prominence with the boost of changing legislation on the provision of health insurance putting the onus on the employee to select benefits.
These exchanges are facing the problems of all online insurance aggregators and comparison sites that are growing in popularity in large insurance markets around the world: how do you get people to use them effectively? The aggregators have taken part of the place of the brokers and perform many of the same important functions, namely providing access to complicated, sophisticated products and helping individuals decide, from a sometimes bewildering range of options, what they want.
But just how comfortable are we with working these things out for ourselves? And how varied are the reactions of different demographic groups? Unsurprisingly, GenRe’s research showed that younger age groups were more comfortable making insurance decisions online without talking to a human, but there was still nowhere near full acceptance. They found that younger people are more interested in shopping around for the best price which could mean that life products become even more commoditised in the future. They also uncovered that all demographic groups will require help with self-education and the use of the online help tools. These last two discoveries could mean that ancillary benefits, which are frequently very important, could be at risk. If people do not understand them sufficiently they are less likely to select them and stick with the commoditised standard offering. This has potentially negative implications for both sufficient coverage in the working population (will people simply not select enough cover?) and reduced revenue for the industry.
The suppliers, (insurers, exchanges and employers), all have to deal with the need to ensure a properly covered workforce and a healthy insurance industry. There are many variables to consider and GenRe’s research focused on perhaps the most difficult to influence: the individual customers’ willingness to purchase through an exchange. The factors they investigated included demographics: age and social class, the employer’s stance, referrals and peer group usage, how the products were used and even the political affiliation of the correspondents – although I doubt insurers will try to influence that aspect!
They discovered that people believe that exchanges are here to stay, which certainly validates the investment we have seen so far in exchanges and probably means this investment will continue to grow. 70% of their respondents said they would use exchanges if they could get a better deal, which indicates that if you have a good value proposition then an online aggregated distribution site could work for you.
World-wide ecommerce is now worth $1.2 trillion and is currently growing 17% a year, (emarketer.com), the trend is undeniable. Most of us who use ecommerce will have participated when purchasing consumer goods rather than life insurance. When looking for consumer goods (the new smartphone, music downloads, toys for Christmas), we will be looking to acquire something we want right now and are usually pretty clear about exactly what we want. With life and health insurance these factors don’t apply in quite the same way. We will not want to use the insurance product immediately, in fact for health insurance we will hope we never have to use it; and it is quite likely that we will not know precisely what we want either, at least not in the same terms the insurance company uses. These are all important problems the industry has to solve. It looks like online aggregator sites such as exchanges are here to stay, and it also looks like they will take a larger and larger share of the market. Disintermediation didn’t happen the way we thought, it’s just that now we have intermediaries who expect us as consumers to do a larger share of the work.