Wednesday, July 5, 2017

With online life insurance quotes and purchases readily available, is the role of a financial advisor dead?

With plenty of top insurance startups and the advent of insurtech and fintech often making headlines in the media, it is not surprising that may insurance agents and financial advisors in the market may have concerns about the continued viability of an insurance sales career.

Hence, in this post, we will try to address, "With online life insurance quotes and purchases readily available, is the role of a financial advisor dead?".

The answer is: it depends.

According to Swiss Re Institute, regulatory changes are catalysing some of these shifts. For example, the China Insurance Regulatory Commission has urged insurers to go online, stressing that both traditional and online insurers should explore technology to reach more customers. It has also removed geographic restrictions on sales of certain life and property insurance products, allowing insurers to sell such products through their own digital sales channels. Similarly, the Insurance Regulatory and Development Authority of India issued guidelines in 2016 requiring all insurance policies in the country to be available in digital format. And since 2015, the Monetary Authority of Singapore has allowed insurers to offer direct-purchase insurance products online without advice.

Yet, online sales of insurance actually remain relatively small in many countries, both compared with other distribution channels and e-commerce penetration in other sectors.

So what gives? It could very much depend on culture.

The link between culture and online insurance penetration 

Aside from technological developments that influence the availability and effectiveness of digital purchase channels, e-commerce penetration likely reflects a variety of socio-economic, institutional and cultural factors. The importance of these influences is difficult to evaluate, not least because customer preferences and insurers’ motives are not directly observable. 

However, proxy indicators provide a clue as to how far differences in insurance e-commerce are linked to intrinsic characteristics of a country’s inhabitants. In particular, Hofstede identified a number of factors that contribute to national cultural values and explain differences in human behaviour which could affect e-commerce trends.

According to the results of simple bivariate correlation analysis that examines the degree of association between country indicators of insurance e-commerce and Hofstede’s cultural indices. The limited number of observations suggests caution in over-interpreting the results, given that the correlation statistics cannot be measured very precisely. Furthermore, simple bivariate correlation analysis does not take into account other country features that might also help explain consumers’ internet buying behaviour in addition to cultural factors. 

Nonetheless, at face value a number of broad inferences can be drawn:

  • Online insurance is more prominent in individualistic than collectivist cultures. This probably reflects a greater willingness of inhabitants to seek out independent sources of information and select the best insurance solution.
  • People in cultures where social hierarchies are clear and well established rely more on personal sources of recommendation. As a result, they make less use of information from impersonal sources such as the internet, and instead favour traditional insurance distribution channels. 
  • Societies in which people are generally uncomfortable with uncertainty and ambiguity report less interest in buying insurance online. In those countries, consumers probably tend to have more trust in experts and therefore use intermediaries for arranging their insurance.
So how much being able to purchase and get insurance quotes online will affect a insurance agent's career or performance, does depend on the society's culture in the particular market.

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