It seems like only yesterday that discussions about growth focused on technology, including everything from the internet and broadband to ERP and CRM. Technology growth continues to be important, but growth now also focuses on how to expand to new global markets—tapping both new emerging economies as well as resurgent developing economies. This is a result of an increasing amount of global insurance revenues moving away from traditionally developed economies to emerging markets.
The leading driver of this trend is the rise of the emerging market middle class, but there are also other factors. For example, global personal lines insurance is growing because of increasing car and housing ownership, and the rise of low-cost airlines in Europe, Latin America and Asia. Alternatively, the globalization of financial markets, government spending on infrastructure, and the privatization of large companies formerly owned by the state is fueling global commercial lines growth. The most attractive markets remain the BRICs, but depending upon a carrier’s product portfolio, markets like Turkey, Indonesia and Mexico can be even more alluring.
For insurers, leaving their home territory is a complex undertaking. The first questions are usually if they can maintain their current risk discipline as they expand or if they will need to refine their risk appetite, and if they can achieve this refinement while maintaining profitability. Even large players with sophisticated risk groups and operations in many regions around the world can struggle to fully and consistently maximize global growth opportunities.
One of the critical factors in global expansion is distribution channel strategy. It is essential to the rate of growth and market penetration and fundamental to the insurer’s ability to maintain the appropriate risk discipline and increase profitability. There are several factors that are important in creating a successful global strategy, but the two most important are how well the carrier tailors its channel strategy and how well it chooses its global distribution management structure.
A Tailored Approach
To be successful in global expansion, insurers must consider the most appropriate channels based on a given country’s economic and insurance market maturity. Market maturity is important because the diversity of channels increases as an insurance market matures. According to a recent PwC study (“May the Distribution Forces Be with You”), “nascent markets” offer few insurance products and therefore require few channels. Alternatively, “late emerging markets” often experience diversification of products in personal and commercial lines, which increases the need for new channel options.
It is also important to note that insurers should consider both the countries that are currently in their existing portfolios as well as any future targets when tailoring distribution approaches. In doing so, they should consider all of the distribution channels at their disposal in a particular country, and then focus on the combination of channels that makes the most sense. While markets in most countries will see some combination of agents, brokers, bancassurance, affinity and retail, and direct to consumer, it may be necessary in some instances to explore using alternative or emerging technologies or partnerships such as mobile, social media and microinsurance.
Choosing the right distribution channel mix is only half of the battle. An appropriate global distribution organization is also vital. Many insurers view global expansion on three levels: global, regional and local. Some of the largest international insurers have adopted regionally led distribution strategies. This rise of “regionalism” reflects a desire to avoid the obvious limitations of globally or locally driven organizations. However, regional approaches also have their shortcomings. Regionalism forces insurers to make comparisons with nearby countries (which may, in fact, be quite different) or overlook comparisons with remote countries that have potential similarities.
Instead, insurers should make every effort to avoid a predominantly regional perspective. Insurers will benefit from adopting a perspective that marries the international diversity of markets with each market’s unique local characteristics. To get the best results, the insurance organization should be designed to facilitate global information sharing across countries and regions.
While the international expansion of a business can be very challenging, a methodical approach that begins with considering the distribution channel needs of each market will promote success. For those companies considering or actually undergoing expansion, now is the time to begin shaping a global distribution channel strategy and organization—even if future expansion is farther down the road.
Carriers all too often make the distribution channel mix a secondary focus because their primary focus is product or potential partnerships. However, reversing the order—or least ensuring that it is part of the primary discussion—can enable more effective business strategies, expand profitability and help drive faster growth.