Technology a strategic differentiator in carriers’ distribution effectiveness: Celent

Carriers looking to grow their books are expanding channels, adding distributors, moving into new territories and working to optimize their existing distribution channels to improve customer acquisition and retention, notes a new report issued this week by Celent.

While approaches may differ among carriers taking part in a recent Celent survey, most respondents consider distribution management to be a key component of their growth strategies, suggests the report, Strategic Issues in Insurance Distribution Management, which contains nine figures and one table.

“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 licences and appointments, and strategically managing compensation,” notes Karlyn Carnahan, report author and a research director in the insurance practice at Celent, a research and advisory firm that helps financial institutions formulate comprehensive business and technology strategies.

But carriers face significant challenges in performing these tasks efficiently, Carnahan suggests in a statement from Celent, a member of the Oliver Wyman Group, part of Marsh & McLennan Companies. “Carriers looking to improve distribution effectiveness use technology as a strategic differentiator,” she says.

A study abstract notes that the key research questions were as follows:

• Who is responsible for distribution management, and what kind of challenges do they face?

• What types of compensation are used, and how effective are they?

• What technologies are used to manage compensation, and what key challenges do carriers face?

Celent reports that results indicate some carriers are investing in improving the servicing of distribution channels, some are focused on managing compliance aspects of distribution management, and many are concentrating on using compensation tools and techniques to more effectively stimulate production.

The abstract notes research findings include the following:

• 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; and

• most carriers rely on a variety of systems to manage compensation, and find efficient calculation and distribution of compensation to be quite challenging.

“In most organizations,” Celent points out, “a formal distribution management organization has primary responsibility for channel management. Managing relationships and compliance are seen as the biggest issues they face.”

The abstract also cites compliance as a 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,” the abstract states. “Those that have automated the processes generally report them as delivering value.”