Page 37 - Insurance Times July 2019

were aging, and needed to be overhauled or replaced. intermediaries (agents and brokers) in non-life distribution,
System upgrades have led to efficiencies, but the industry and the same situation is also exists in India. Nevertheless,
is still only part of the way through the updating process. direct distribution method is generally and gradually
increasing, and insurers can expect to realize benefits from
Acquisition ratios are changing very little with only a fraction their these kinds of investments in the direct channels as
of customers using direct distribution networks. However, and when this usage expands to a significant level.
insurers are undertaking widespread efforts to increase the
use of direct distribution networks, and customers are Non-life insurers have generally been vigilant in recent years
beginning to opt for new and alternative channels, such as in managing their routine operations. While some have
Internet and mobile. This is helping insurers to increase their faced very high but unavoidable catastrophic losses, others
reach, and enhance customer satisfaction, but distribution have made good progress in containing and even reducing
costs often remain high. operational costs. Not all insurers have invested as much as
in improvements as they might have-often because they
The U.K. Market, which had given the non-life market all the operate either in this highly competitive non-life markets in
insurance types and products initializations. To start with the which price competition reduces margins or in this still
basic initiation of thinking on "Fire Insurance" after the nascent markets like India, where the focus is on growing
'Great London Market Fire' during the period of four days market share and revenues. It also tends to be more costly
starting from 2nd continued up to 5th September, 1666. The to acquire new businesses, in these highly competitive or
first Motor Policy was introduced for the first time globally fast-growing new markets, but in almost every market,
in England during 1895 to cover Third Party Liability and acquisition costs are one piece of the expense ledger that
subsequently, the Comprehensive Policy of Motor Policy is especially difficult to reduce.
entered into the non-life market (i.e. additionally covering
Own Damage (OD) Section along with Third Party Cover) The acquisition ratio is a proxy for the effectiveness with
was introduced there in 1899. which distribution networks are being managed, but when
the bulk of distribution is weighted heavily toward high-cost
As the insurance world's history reveals that all though the intermediaries (agents and brokers); insurers will need to
Marine Policy was recorded to be in existence around four transform the nature of the business itself to reduce these
hundred years before The Birth of Christ (BC) but surely the costs.
modern 'Commercial Indemnity' concept based "Marine
Strong customer acquisition and retention rates will be
Policy" as exiting now in the global market was planned only
critical for sustainable growth for most the non-life insurers,
during 1779, in a coffee house of London. We also know
especially with ongoing pressure on reduction in premiums
that all Miscellaneous Line of Business (LOB) products in
to sustain in this highly competitetive Indian non-life
non-life insurance sector came one after another, in
insurance market. Here, the Insurers will therefore need to
seriatim, in England only after the passing the Fatal
understand exactly what resonates with their customers,
Accidents Act, during 1855 - in the Parliament there in
what encourages the clients to stay in their insurers' book
England.
on long-term basis, and what could encourage them to
defect. Moreover, insurers will need to look beyond
But now if we look at this current U.K. Market - What we
customers' satisfaction with individual products and
find now there? - It has become the highest acquisition ratio
services, and make sure they are vigilant about the entire
in the world at present (as evident from the recent studied
customer experience in the market. This will mean making
reports, despite widespread promotion of direct channels,
sure customers' specific needs are being met, in the way
because there the market is very well developed and highly
and at the time they prefer, across the lifecycle of this
competitive. As the result, the cost of acquiring new
insurance relationship.
business has also become high, since commissions still
represent a large, integral distribution expense therein, and
the cost of competing for business through advertising and Reference:
aggregation websites is found to be high enough. References have been taken from the contemporary
circulations & reports / current discussions as read (in hard
The acquisition ratio rose, for instance, the ratio is form in several articles & also in soft forms as available in
deteriorated primarily due to the continuing dominance of web-sites).
The Insurance Times, July 2019 37