Online purchasing has infiltrated every aspect of daily life. From ride-sharing and online retail and grocery purchases to travel and hotel bookings, the ease of digital purchasing satisfies the consumer need for instantaneous consumption. Insurance is no different. Customers expect to be provided tailored offerings that are relevant to their needs in a straightforward, user-friendly manner, and insurers have gone to great lengths to modernize their distribution models to meet consumer demand.
The shift to digital distribution has been revolutionary for the insurance industry; however, technological advancements cannot be achieved at the expense of regulatory compliance, robust insurer oversight, proper market conduct or the fair treatment of customers.
Given the regulatory climate in Canada, insurers and intermediaries are well aware that they must design and oversee their digital offerings with compliance in mind. However, amid the immense and unprecedented opportunity for insurers to grow and diversify business online, there is a growing chasm between the experience customers demand and the boundaries of the legal and regulatory framework to which insurance products and services are subject.
Distribution models, embedded offerings and marketing partnerships
In response to customer demand and market trends, many insurers have invested in or built their own web portals, web applications or mobile applications to offer and bind insurance online. Intermediaries may also own and maintain portals or applications. This ensures that customers have a seamless experience once they have decided to buy insurance from that insurer or intermediary.
But what about acquiring would-be customers on non-insurance platforms? Digital ecosystems and partnerships with key retailers or associations allow insurers and intermediaries to create competitive advantages in the insurance market. Ecosystems have enabled financial institutions to connect with customers to add value by offering additional products based on the customer’s perceived needs or behaviours.
Marketing or affinity partnerships have existed for decades in the insurance industry. However, the personalization of the customer’s experience and incorporation of the insurance offering into the customer’s digital journey are newer features. Offering personalized products in connection with a marketing or affinity partner with whom the customer has an existing relationship or experience permits insurers to reach entirely new pools of customers, often in different industries.
Affinity partnerships generally involve the marketing of insurance products to a list of potential customers, which the insurer may personalize by leveraging the affinity partner’s information and relationships relating to these customers. The affinity partner may refer to the insurer as its “preferred provider” for a specific policy or program.
The insurance regulatory framework presently does not contemplate all of the types of partners that a customer may entrust with their information and refer them to potential insurance providers. Generally, only licensed insurance agents are permitted to engage in certain activities, which means that there are limited ways for affinity partners to add value in the process without being offside regulations, despite having substantial customer experience and knowledge.
Partnering with any entity may also pose challenges and/or create regulatory risks that must be weighed against the promised benefit of additional market share. It is no longer an acceptable defence for insurers to be unaware of the activities of entities involved downstream in their programs. The net value of a partnership must therefore be assessed with regard to the proposed partner’s level of compliance with privacy, consumer protection, insurance regulations and other requirements, as any noncompliance in this regard could lead to financial, reputational and operational risk for the insurer.
Insurers are also embedding offerings within digital transactions on non-insurance platforms. Many digital purchases trigger the need for some sort of insurance protection, such as shipping protection, extended warranty protection or refund/cancellation insurance. Embedded insurance enables partners to offer insurance policies incidentally as part of a digital sale, which arguably benefits the customer by closing the protection gap.
Notwithstanding that argument, market conduct and disclosure rules continue to apply, particularly where insurance is not offered on an “opt-in” basis. There is currently minimal formal regulatory guidance on embedded insurance and/or the incidental sale of insurance.
Conclusion
Technological innovation and the involvement of platform partners will improve the customer experience and continue to gain traction in the insurance ecosystem. Simultaneously, the provincial regulators have clearly emphasized the importance of the fair treatment of customers throughout the insurance product lifecycle. Customers should be positioned to make informed decisions about insurance products and services, regardless of the channel through which they purchase insurance. Complex or highly regulated insurance products require additional safeguards and heightened customer interaction. All of this is achievable, but full compliance with existing laws and regulations may limit an insurer’s flexibility with respect to new programs and new-to-insurance partners.
For more information on this topic, please reach out to the author, Marisa Coggin.
This article was originally published on Law360TM Canada (www.law360.ca), part of LexisNexis Canada Inc.
