DISTRIBUTION OF INSURANCE AND BANKING PRODUCTS: REINVENTION IS SURVIVAL!

• Driven by regulatory developments and digitalization, the distribution of financial products must evolve.
• The competition from insurtechs and fintechs underlines the urgency of differentiation.

The entry into force of the Insurance Distribution Directive (IDD) on 1 October next urges the networks of intermediaries to review their quality standard: traceability of the duty to provide advice, setting up control procedures relating to the design and distribution of products, etc.

In the area of banking law, the payment services directive (PSD2) became effective at the beginning of the year and regulates the market with the aim of ‘stimulating innovation, competition and efficiency’.

Besides those regulatory developments, the digital revolution is making its full impact felt on the industry with the increased competition from insurtechs and fintechs.

What impact does this changing environment have on the distribution of insurance and banking products?

The intermediary, regardless of the nature of its services to the customers – advice or provision of services – will in a few months’ time have to exhibit greater transparency in terms of its actual commissions.

In addition, the digitalization is causing an upheaval in the rules of distribution: today, the customer increasingly buys and manages his insurance and banking products in the currency that suits him and from wherever he wants.

This accessibility means loss of income for the intermediaries, and obliges them to review their business models and their targets.

The intermediary will have to distinguish itself and offer even more added value to its customers if it is to remain an essential link in the distribution chain, especially as for the distribution of the most basic products (home insurance, current account, health insurance, etc.), the network (distributor) will move away from the experienced intermediaries and turn towards aggregators or entities that are in regular contact with the customer: the marketplaces.

This commodification[1] of the product offering induces the networks of intermediaries to reinvent themselves and to project themselves as ‘trusted advisers’ on products that are more difficult to understand, such as life insurance and saving, and even composite products. The networks offering the least added value are de facto set to disappear.

Customer experience as a market driver

Another key to survival is the disruption of the distribution market by digital tools.

Mobile apps, digitized customer service, 24/7 access, pricing model, etc. are all developments and consumer services that will have to be offered to customers.

Offering products with greater added value rather than mass market products, such as savings products, is what will eventually make the difference.

In the end, this transformation will be coupled with greater customer proximity and create an opening to new target markets.

Nevertheless, in order to fully understand the potential offered by new distribution models, the market players will have to show flexibility and adapt to the needs of their customers as well as to the nature of the products they distribute.

In the face of competition from insurtechs/fintechs, which are all capitalizing on the digital revolution, they will have to pull out all the stops!

The proximity and trust built with their customers, and the understanding and use of new technologies to build customer-focused (needs, behaviour, use, expectations, etc.) disruptive distribution models, will be crucial.

[1] Commodification is the process whereby a differentiated product or service…