AI as a New Distribution Channel Impacts the Entire Business Model

The Impact of Speech as a New Distribution Channel on the Distribution Mix

“Hey Google (or Siri), arrange a good car insurance for me.” Speech in one’s own language or dialect is the most accessible and inclusive way of communicating, and it is location-independent. Generative AI makes it possible to convert human speech into text, interpret this text, and convert text back into speech.

In addition to having a natural dialogue with a computer, this technique can also be used to actually purchase car insurance in the customer’s own language and even dialect. This not only creates more connection and trust with various target groups, but it also makes it easier for diverse groups to obtain insurance. Consider the elderly who struggle with phone or computer buttons, as well as those with low literacy and non-native speakers. In the near future, AI can even assist in filling out claim forms.

While we don’t know exactly when, it is certain that AI will lead to a new channel that will change the distribution mix of insurers. The devices are here. The speech technology is here. And the data is here. All that is needed is a proverbial “satay skewer” to turn it into a business asset that contributes to the strategy execution of insurers.

AI Has a Direct Effect on the Business Model and Profitability

In addition to customer benefits, this technology offers insurers the significant advantage of much better risk assessment. Thanks to the use of various “robots,” all kinds of data can be shared and linked. This forms the basis for new products, personalized offers at scale, and adjusted pricing models.

The mix of distribution channels for car insurance is constantly evolving. Long ago, glossy brochures in intermediaries’ racks found their way to customers. In the 1980s, cut-out coupons in TV guides emerged, followed by telemarketing and direct mail. At the beginning of this century, the online channel was added. Initially, a few providers dominated online, but online was still small. With the entry of players like Ditzo and Allsecure, the online distribution channel grew enormously. Soon, all other providers followed suit. You don’t want to miss out on 65% of the market. There’s a clear parallel with speech as a distribution channel.

But there are also important differences. Speech is much more accessible than all other distribution channels. It is accessible to all types of customers. The combination of speech and AI also makes it possible to collect much more data in a simple and fast way. This leads to better risk assessments, more personalized advice, and efficiency gains in operational processes. And to new products with different life cycles and risk models.

AI Impacts the Entire Business Model and Requires a Clear Vision for Strategy Execution

Beyond the question of what these new products and services look like and what is needed to deliver them, the development continues. Which products you offer to which target groups impacts administration, data management, and premium setting. It’s not just about a new IT development. AI impacts the entire business model, from premium setting to claims reserving and associated governance. This requires a clear vision for strategy execution.

The advent of AI also has implications for activities in the sector. What does this mean for intermediaries? When you look at the distribution mix, you see they have always played a role. They will continue to do so. A portion of customers will always need an advisory conversation with an intermediary. Naturally, intermediaries can also use AI to easily collect all data. This leaves more time for a thorough advisory conversation with depth and quality. Insurers can support their intermediaries in this.

The development of AI requires investments, but as an insurer, you certainly don’t have to build and invent everything yourself. Much is already available, such as the technology. What is especially important is the vision to set up an AI ecosystem with the right balance of knowledge, collaboration, capacity, and data. The ecosystem concept involves collaboration with parties that can help optimally deploy this technology. This includes a healthy revenue model for all partners in the ecosystem, which is no different from the existing online and intermediary revenue models.

Why a Wait-and-See Approach Leads to a Rapid Lag

Because much is already available, sitting still and waiting for the AI hype to blow over is not an option. First, because it is not a hype. And second, because developments are progressing very quickly. At the moment, it’s mainly about experiments, for example at the ANWB and in the taxi world, but that is changing quickly. Our PrepAIr research shows that only 4% of non-life insurers are actually ready for AI. The remaining 96% are still searching. This creates opportunities for new entrants who see the potential of this new distribution channel.

Due to the significant impact on the business model, a wait-and-see approach leads to a rapid lag. Data is highly relevant and leads to better models and risk assessments. Volume becomes important. Data management, ensuring both integrity and accessibility, is a top priority. Entering later also means falling behind in the learning curve.

AI also creates a selection mechanism: with a large amount of data, you quickly attract the “good risks”; the people who are willing to share their data through this channel because it can benefit their insurance. Those who are late will be left with the bad risks: the people who prefer not to share their data for fear of a higher premium. So it’s also about profitability and market share.

Optimal Use of the Flywheel Effect

Speech as a distribution channel creates a flywheel effect. It also provides the opportunity to collect more data for better risk assessments. More insight into data such as driving behavior can lead to fairer pricing, especially from the customer’s perspective. Do you want to show solidarity with reckless drivers or with people who drive more responsibly?

In conclusion, these developments are not limited to car insurance. They are just the tip of the iceberg. Speech is also the future distribution channel for mortgages, loans, and business insurance. The various sub-developments are in full swing. Taking action now and aligning strategy execution with this new distribution channel means making optimal use of the flywheel effect.