Over the last few months I have discussed the impact that technology is having on product design in t...
However, the distribution mechanisms of the insurance industry is a sector of the market that is arguably in even greater need of change. Competition has made little impact, with providers often battling it out on the basis of commission levels rather than on the basis of administration, investment performance and product loadings.
There is little doubt that insurance products have traditionally carried greater complexity and needed more rigorous administrative processes than relatively simple investment fund sales.
Yet while this is understandable for the protection product, it is impossible to justify for the bond, which is merely a 'wrapper' for a fund or range of funds. Perhaps the reason is that the insurance bond, particularly an offshore version, is often held within a trust arrangement in order to maximise tax efficiency.
Although it is easy to see the development of insurance products following a more transparent route, once technology has opened up the channels, it is less easy to see how the bolt-on services will be accommodated. It is possible that these services will muddy the waters so that the overall package loses any of the transparency gained.
However, this overlooks the fact that it is in business-to-business processes that many industries are now beginning to make most cost-effective use of the internet. There are great opportunities for companies and their distributors to make massive cost and efficiency savings without necessarily engaging in online sales.
For example, how many offshore life offices have a reliable, straightforward and comprehensive online trust package that enables advisers to deliver an effective client-focused solution? This is a classic business-to-business proposition that is crying out for a technology-led approach.
If private consultancies are able to provide wonderful online support facilities to life offices, what is to prevent life offices from repackaging the heavyweight literature and telephone advice they currently offer into an online solution?
This information would be far better disseminated on a CD or a website (or a combination). Such an approach can also lead to a far more client-focused solution at the trust level which can only be to the benefit of all concerned.
On the distribution side it is important that advisers to begin to understand and embrace the possibilities. Improved product transparency means that discerning clients will become increasingly aware of the margins allocated to each party and, unless added-value is demonstrated, they will begin to ask questions.
We are beginning to see the advent of an online self-sale housing market, web-enabled straightforward leg and real time financial planning across the internet. It is hardly a quantum leap to imagine an online investment and trust packaging service. Insurance companies and their distributors must both make substantial alterations to their business models if they are to properly exploit their expertise.
Information systems and the development of the internet should represent an integral part of the planning for every business - those that tread a different path will be following the road to nowhere.
David Ferguson is a director at product design and marketing consultancy, The Abacus
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