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Online Insurance Distribution – The Evolution

April 20, 2021

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The insurance industry is in the process of a digital transformation. What that will ultimately look like is an open question, but brokers will need to embrace the changes and make certain adjustments as the digital marketplace evolves.

Since 2016, the insurance ecosystem has seen dozens of new entrants with different offerings that range from standard home and auto to micro policy offerings. Some of these include:

  • Sonnet and TD a fully digitized direct online platform from Canadian underwriters.
  • Apollo a fully digitized online small commercial broker, MGA and white-label platform.
  • Nude Solutions a fully digitized online white-label platform for home and auto.
  • Metromile a fully digitized online auto insurer based on miles driven.
  • Laka – a fully digitized online platform for bike equipment and accident coverage with premiums adjusted based on claims.
  • CoverHound a fully digitized online broker that provides competitive bids from insurance partners.
  • Lemonade a fully digitized online insurer that offers renter, pet, and homeowner coverage with a high-quality AI bot and donation program.
  • Canopy an online broker that provides landlords with tenant credit and occupancy history for free to market tenant deposit and contents insurance.

While most, if not all domestic insurance carriers and national brokers are investing in or building out their digital capabilities, the pace of technological transformation has been slow compared to other industries. In 2020, it has been estimated that $208 billion in policy premium is being issued in a fully digitized process (quote, bind and issue) in the United States. While the number is impressive, it only represents 15% of the $1.6 trillion in available premium [1].   In Canada, approximately $9 billion or 12% of insurance premium is being issued fully digitized, surprisingly, this represents only 1.3% of all policies issued [2]. The Canadian data is based on the 2019 calendar year, so the numbers are likely higher in 2020 due to COVID-19. It has been projected that fully digitized distribution is expected to more than double by 2024.

In addition to fully digitized insurance offerings, there is another large subset of platforms that we can view as online but requires some personal interaction with a licensed broker. While the numbers vary depending on the class of insurance, it is estimated that approximately 20% of Canadian insurance is purchased online. If we assume that 12% is fully digitized, then 8% of transactions would require interaction with a licensed broker. While this is certainly a point of friction there are lots of advantages as well. The broker will generally have a much higher closing ratio; are able to provide professional advice, potentially cross-sell and finally, the personal contact is a good protection against fraud. There is little doubt that technology enables brokers more time to focus on delivering an improved customer experience when the documentation and transactional execution process are automated.

At Smythe Advisory, we are increasingly seeing innovative use of technology that is either self-developed or provided by third-party platforms, amongst small to medium-sized brokerages. Larger brokers, whether in the midst of developing their own technology or not, have begun making strategic acquisitions or partnerships with insurtech-focused companies.  Many of these innovations could fundamentally change how brokers interact with their clients.

Five Trends in Online Distribution

The following are some trends we have observed in online distribution:

White-Label Platforms – These are generally third-party platforms that have quote, bind and issue capability with the developer’s underwriter partners. The key to these platforms is that the developer has arranged an application program interface (API) with the underwriter that allows a seamless transaction. The obvious advantage is that a broker can brand it under their name and leverage the platform to offer insurance to a wide geographic area with no handling and a small acquisition cost. The issue with these platforms is that the broker needs to drive traffic to their website. This is typically accomplished by purchasing leads from third-party aggregators, however as a consumer’s propensity to transact online continues to increase, we expect a shift towards traditional digital marketing strategies. One obvious area of concern is the underwriter relationship is with the platform and not the broker. This may put the broker in a vulnerable position in terms of markets.

Broker Developed Platforms – These are generally developed by the broker and allow for the customer to enter their application and obtain quotes from several insurers. To be effective, these platforms require an API into the underwriter’s system and the ability to do this depends on the carrier relationship and capabilities. It might be the case they have an API with some carriers, but not with others. Once the customer completes the application and receives a quote, it must be reviewed and approved by a licensed broker prior to binding and issuance. While there are certain cost inefficiencies to having a broker involved, there is the benefit of having better front-line underwriting and relationship-building potential. The question in developing one’s own platform is whether the development costs will be rewarded with higher sales and lower transaction costs.

Third-Party Platforms – Much like the white-labelled platforms, developers have created online brokerages and MGAs that offer the public and brokers, respectively, access to insurance products with a digitized quote, bind and issue capabilities. Of note, this is being offered for small commercial policies as well.

Automated Renewals – We have worked with brokers that have sufficient volume with an underwriter to justify the development of an automated renewal system. Once the customer opts-in, the policy is automatically renewed and issued with no handling by the brokerage. This can result in significant cost savings.

Specialized Programs – This is quite common for specialty brokers who have developed programs with insurers.  The customer logs into the brokerage website and completes a short application. If the underwriting criteria are met, the policy is paid for bound and issued immediately. Typically, the policy will be underwritten through a Lloyds broker or syndicates, but in some cases, domestic insurers will develop programs with brokers.

There is a tremendous amount of investment in the development of online insurance distribution. We believe that some of these digitized underwriters and distribution platforms will be very successful in improving access and lowering transaction costs, especially those who can focus on under-served segments in the marketplace.

Where Does the Market Go from Here?

From an overall industry perspective, the question is whether there will be market disruption at the scale seen with the rise of Amazon or Uber. We think the economics of the insurance industry will ultimately dictate how this plays out. Some important questions are:

  • With claims and operating costs close to 100% of premiums for insurers, how much savings can ultimately be passed onto the consumer to compel them to make a switch?
  • Is insurance the type of product where an improved purchase experience will fundamentally shift consumer behaviour?
  • Do consumers value professional advice offered by licensed insurance professionals or are they primarily motivated by the ease of purchase and price?

A survey of young adults including millennials (born in 1981 to 1996) and Gen Z (born in 1997 to 2006) published by Applied Systems in 2018 had some interesting results:

  1. Young adults typically pick insurance providers through personal referrals combined with online searches and reviews. More specifically, they are less trusting of brands and want individual relationships.
  2. The customer experience and service are critical. They expect quotes, policy changes and access to their information almost in real-time.
  3. There must be multichannel communication options including in-person, phone, internet, or mobile apps.
  4. They are increasingly skeptical of advertising. Authenticity and transparency are critical as is wanting to do business with those who share their values.

The response to this question in the Applied Systems survey should be of special interest to brokers. 

From our perspective, the traditional brick and mortar brokerage is still very relevant in today’s marketplace. Certain classes of insurance might naturally migrate to a digitized issuance model such as renters, pets, travel, individual assets, and automobile policies.  However, there are many opportunities for brokers to adjust. If appropriate they can introduce online platforms, improve their online presence and develop multichannel access to both information and documents.

Online insurance distribution is going to continue to evolve and take market share but there is no reason why brokers cannot play an important role and thrive during the evolution.

[1] Statista research

[2] Canadian Council of Insurance Regulators



If you have any questions or comments on this material or other aspects of brokerage management, please contact our P&C Advisory team.






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