Strategic Issues in Insurance Distribution Management

by Karlyn Carnahan, May 18, 2015
Industry Trends
North America

Abstract

Carriers use a variety of techniques for growing the book, and most consider distribution management a key component of their growth strategy. They are expanding channels, adding distributors, moving into new territories, and working to optimize their existing channel to improve customer acquisition and retention.

Some carriers are investing in improving the servicing of distribution channels. Others are focused on managing the compliance aspects of distribution management — assuring the distributors have the right licenses, and that state appointments are made in a timely manner. Many carriers are concentrating on using compensation tools and techniques to more effectively stimulate production.

To understand what top carriers are doing in this area, Celent conducted a survey around this topic. The goal was to understand how the carriers are organized to manage the distribution channel, what types of techniques they use, how effective those techniques are, and what challenges they face.

In most organizations, a formal Distribution Management organization has primary responsibility for channel management. Managing relationships and compliance are seen as the biggest issues they face.

A wide variety of compensation techniques are used by carriers, and most say they get value from those programs, although carriers report that it is more important to calculate compensation accurately than to assure compensation is effective at driving desired business. 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. “Having an incentive compensation program isn’t highly effective, but not having one would be even worse,” said one carrier.

Most carriers rely on a variety of systems to manage compensation, including Excel, and find efficient calculation and distribution of compensation to be quite challenging. For many, the ability to administer a compensation program easily is the key driver as to whether the program will be offered. While they may wish to utilize a particular technique, their technologies create barriers.

Compliance is another 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. Those that have automated the processes generally report them as delivering value.

“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 licenses and appointments, and strategically managing compensation. However, carriers face significant challenges in performing these tasks efficiently,” says Karlyn Carnahan, a research director for Celent’s Insurance practice and author of the report. “Carriers looking to improve distribution effectiveness use technology as a strategic differentiator.”

This report contains nine figures and one table.

Celent is a research and advisory firm dedicated to helping financial institutions formulate comprehensive business and technology strategies. Celent publishes reports identifying trends and best practices in financial services technology and conducts consulting engagements for financial institutions looking to use technology to enhance existing business processes or launch new business strategies. With a team of internationally based analysts, Celent is uniquely positioned to offer strategic advice and market insights on a global basis. Celent is a member of the Oliver Wyman Group, which is a wholly-owned subsidiary of Marsh & McLennan Companies [NYSE: MMC].

Media Contacts

North America
Michele Pace
mpace@celent.com
Tel: +1 212 345 1366

Europe (London)
Chris Williams
cwilliams@celent.com
Tel: +44 (0)782 448 3336

Asia (Tokyo)
Yumi Nagaoka
ynagaoka@celent.com
Tel.: +81 3 3500 3023

Table of Contents

Executive Summary

1

 

Key Research Questions

1

 

Key Findings

1

Introduction

3

 

About this Survey

3

 

Key Research Questions

4

Organizational and Strategic Issues

5

 

Responsibility for Distribution Management

5

 

Importance of Issues in Distribution Management

6

 

Agency Segmentation

7

Compensation

8

 

Strategic View of Compensation

8

 

Types of Compensation Utilized

9

 

Effectiveness of Compensation Techniques

10

Technologies and Challenges

11

 

Licensing and Appointments

11

 

Technologies Used

12

 

Challenges in Managing Compensation

13

Conclusion

15

Leveraging Celent’s Expertise

16

 

Support for Financial Institutions

16

 

Support for Vendors

16

Related Celent Research

17

Sign in to download reports and access personalized information