TO AFFINITY AND BEYOND

To Affinity and Beyond

tl;dr: We succeed when our business partners succeed. 

In a career spanning more than four decades I have had the good fortune to work in many different industries. Something very noticeable is that each has its own particular primary focus.  For example, in technology distribution it is all about return on capital; while in Software-as-a-Service the overriding goal is customer acquisition.  In the personal computer hardware business, price was the great determinant of market share and growth. And for success in the mobile phone market, both wholesale supply and aftermarket services companies depend crucially on marquee vendor contracts.

This doesn’t mean that nothing else matters. Naturally all companies are concerned about product development, marketing, organisation, sales, customer service, channel strategies and so on. This is more an observation about each industry’s uber-metric: the primary factor determining growth, relative competitive advantage, and ultimately valuation.

In the insurance industry where I now work my hypothesis is that distribution represents this critical success factor. That is to say, sales channels, and channel productivity. 

Let me elaborate. A contract of insurance, or policy, is, in essence, a promise made by an insurer. The scope of that promise is ‘the product’, while the insured party (individual, company, etc) is the customer.  The insurer’s promise is to accept the transfer of a risk, e.g. if your cargo ship hits an iceberg and sinks, the insurer will pay to replace the ship and its contents. Or, if you break your leg at work, the insurer promises to pay for medical treatment.

An insurer has multiple ways to distribute its products. In many cases insurance policies are sold directly, either face to face with customers, over the phone, or online.  Just as many policy sales are intermediated by third parties such as agents, brokers, affinity partners (banks, retailers, employers and others), aggregators (comparison websites, booking platforms, etc), and introducers.  

Most insurance products are pretty easy to copy. It’s rare to say one motor policy or travel policy is significantly better than another. Competing insurers can usually add in any extra features that matter without difficulty.  And seeking to be the low-cost provider is not a great basis for competition in this context because the main cost factor driving insurance premiums is the expense of settling claims. If an insurer systematically pays out less in claims, then the product itself – almost by definition – offers less value than competitors’ equivalents. (That is, provided you measure customer value in terms of the aggregate value of claims paid.  An alternative view of insurance value is ‘peace of mind’, but that’s rather challenging to quantify.)  

Now, some underwriters may be systematically better than others at pricing risk. That’s definitely an alternative candidate for a success hypothesis. The reason that different insurers offer you varying prices for very similar policies is down to their individual assessment of multiple risk factors. That takes knowledge and skill (and data) which translates to financial success. Meanwhile, there is considerable focus these days on quality of service and customer experience which certainly impact customer loyalty that, in turn, drives policy renewal rates and customer lifetime value.

Nonetheless I’m sticking to my theory that good distribution beats everything. Especially in the Affinity (B2B2C) space where I’ve been working it’s almost unarguable. The reason is that insurance is connected to something: a risk.  If you own a car, you buy motor insurance. If you go abroad on holiday, you buy travel insurance. If you own stuff, you buy home contents insurance. The Affinity model associates the sale of insurance with an underlying asset or transaction.  When you take out a mortgage to buy a home, the bank requires you to have life and buildings cover. When you start a new job, your employer may provide benefits such as medical insurance.  These points of demand aggregation, banks, employers, retailers, airlines and so on, create economies of scale while greatly reducing competitive pressure at the moment of truth when insurance is connected to individual risks.

How does Niuvo think about channels of distribution?  One thing first of all: Niuvo is not an insurer. We operate as an intermediary for our risk carriers (including insurers, reinsurers and captives), helping to design, sell and administer insurance policies with cool technology and amazing customer experiences. You can think of our business as enabling our insurers to be successful in developing their channels of distribution, direct and indirect.  And how do we create that success formula?  Through deep understanding of the primary focus of firms operating in multiple industries, deploying insurance-based propositions that serve specific needs, aligned with core strategic goals.

This article has been Produced, Arranged, Performed and Composed by Niuvo™ for Life’s rythm