The best distribution channels select insurers, not the other way around

At the ILO, we recognize that access to financial services that improve risk management is essential for building resilient livelihoods and advancing decent work. Improving distribution is one of the biggest challenges facing insurers trying to promote inclusive insurance. By overcoming the distribution challenge, insurers can promote social justice in financial markets by improving access for underserved target groups.

Our new paper Improving distribution strategies in inclusive insurance, published along with the Microinsurance Network, argues that the best distribution channels select insurers, not the other way around.

As highlighted by Peter Gross, Executive Director, BFA Global and co-founder of Turaco: "The largest channels in any market are routinely approached with proposals to distribute insurance products. The question for an insurer is therefore not only which channel to select, but how to make a compelling case for a channel to launch, scale and sustain an insurance offering."

The question for an insurer is therefore not only which channel to select, but how to make a compelling case for a channel to launch, scale and sustain an insurance offering.

Peter Gross, Executive Director, BFA Global and co-founder of Turaco

To get these distribution channels to commit to a partnership and to sustain that commitment over time, insurers need to ensure that the following four conditions are met.

First, the customer experience must be good at every stage, from the point of sale through to claims settlement. Large mass-market channels have significant brand equity and customer loyalty to protect, and they will not accept distribution arrangements that expose their customers to poor service or opaque processes. Getting ahead of potential customer concerns – through transparency, clear communication and rigorous complaint handling – is essential, because the customer will ultimately hold the channel accountable.

Second, the economics of the partnership must reflect the realities of how channels operate. Most mass-market channels work on single-digit margins. Standard operational expense loadings can make a partnership unviable from the channel's perspective. Successful approaches include making marketing investments upfront, sharing underwriting profits, and ensuring that commission or revenue-sharing arrangements reflect the value the channel contributes to reaching its customers.

Third, the product should be designed to benefit the channel's core business, not merely to add a marginal revenue stream. Channel leaders are far more likely to invest in scaling an insurance product if it helps them achieve their own business objectives than if it simply offers a small commission. These might include improving customer retention, increasing transaction frequency, or strengthening credit performance.

Fourth, the partnership should be built on ongoing learning and innovation. Channels have deep knowledge of their customers, their processes and what works in their operating environment. Insurers that treat the channel as a source of insight, continuously refining products, messages and processes in collaboration with channel staff, tend to build more durable and productive partnerships.

To learn more about how to strengthen distribution strategies and partnerships, see the new paper Improving distribution strategies in inclusive insurance and the related webinar (recording available here at the bottom of the webpage), part of our Learning from Leaders Series.