In the United States, in the late 19th and early 20th centuries, when immigrants began to flow into the country, populating rural areas and cities, they would come together and create communities and organizations designed to socialize. These small communities would also use their combined resources to protect themselves and their own interests. It became very common for immigrant organizations to develop committees that would take care of them in difficult circumstances, far from their homeland, but not far from help.
The association fees would cover a wide range of protection measures, with additional "premiums" in the event that a family or individual needed a home rebuilt or needed medical care or needed help due to the death of a loved one. The rise of affinity insurance, like everything else, grew out of necessity.
Affinity and program are more than one category. They are a principle.
Risk is a "given", but also affinity. Insurers realize that family, community and relationships will continue to be beneficial in offering ways to offer and sell insurance products. Affinity and programs are not just a "category" of insurance, they represent how people or companies naturally come together in "communities" where insurance can meet their unique needs. People tend to group themselves. These groups provide cooperation, trust and common features. What remains is for insurers to reveal that they are creating new opportunities from new communities for programs and affinity activities. generally represents a group of similar needs or risks that require products that are designed and priced for those risks. It is a way of "personalizing" the products and assessing the risk within a common "community" rather than with the wider group.
We discuss the reasons why affiliation and program activities have the potential to grow in Majesco's forthcoming thought-leadership report, A roadmap for the future of insurance: Programs and affinity activities written in connection with the Professional Insurance Market Association (PIMA). In this blog we set the stage. Why is it a good time for software and affinity products to consider looking in new directions for business growth? Let's look at five important trends.
Trend # 1
: Software and Affinity Business Growing.
The Target Markets Program Administrators Association (TMPAA) has published a report every year since 2010. In the October 2018 report, TMPAA found that program premiums rose 131 percent between 2010 and 2018, with the market size growing by two figures annually. [i] (See Fig. 1) Program activities are ready to continue this growth rate as administrators indicated plans to introduce more programs while operators expand through new programs.
Figure 1: Growth in program business premiums
Many programs are often administered and marketed through Managing General Agents (MGA) who add their own value to the equation. role in bringing out new products faster than traditional insurance companies. The report notes that because MGAs tend to be narrower and smoother, they can quickly take on new products that address new or emerging market risks. To address the issue of having sufficient loss data for insurance, they work with multiple insurers and reinsurers who take slices of the risk, eliminating the potential for each specific insurance company that must cover the entire risk. [ii]
cyber, on-demand, Gig Economy, marijuana, renewable energy, vaping, transaction insurance, credit, active shooters, wildfires, climate risk and transportation.
Trend # 2: New, innovative opportunities are popping up everywhere – providing fuel to accelerate growth.
Insurance distribution can no longer be limited to traditional methods. It must be developed into new digital models and partnerships that offer or embed insurance offers within another assignment and purchase trip. Business models for affinity and programs, although they have experienced strong growth in recent years, will need to adapt and expand their view of partnerships and mix the idea of networking in the B2B area with adding value to the B2C area.
The traditional B2B2C affinity and program business concept offered insurance products through non-insurance organizations such as associations, non-profit organizations or employer groups. But today's buyers, especially Millennials and Gen Z, do not necessarily associate with any of these traditional groups. They will look to buy insurance through other groups such as Gig Economy groups, health and fitness organizations, major retailers, car manufacturers and more – where the purchase is part of another relationship or transaction. These are growing, innovative, non-traditional opportunities that must be captured.
Trend # 3: The growth of digital platform technology leads to frictionless purchases.
Insurance companies are establishing themselves with new partnerships and digital platforms that will catch upward buyers – when and where are they?
Although affinity and program activities have grown significantly in recent years, this is mainly due to a focus on traditional organizations. Majesco's research with insurance companies and distributors in the affinity and software business area found a significant number of new opportunities to reach the next generation of insurance buyers. We also found large gaps between traditional partnerships and new innovative partnerships that are becoming increasingly important for being competitive in a rapidly changing market.
This transition from our traditional models to new, innovative models is linked to today's digital age of insurance shifts. This shift is accelerating and in many ways redefining affinity and software business models – the B2B2C model – by leveraging next-generation digital platforms and ecosystems to expand market reach based on customer needs and expectations. Success with these models is directly linked to insurance companies' digital platform technology and expanding ecosystems for new partners.
In this new era of insurance, almost all insurance processes quickly become frictionless, including purchases. If channels are easy to use with products that are easy to understand, insurance has the opportunity to grow through a frictionless multi-channel distribution system. The advantage of adapting to these channel dynamics is that we go from having to "sell" people who buy insurance, to introducing an insurance that is ready to be "bought" seamlessly when needed and create a scalable, sustainable business model.  Some forward-looking insurance companies are taking bold steps to harness the power of digital technology and ecosystems that can support a new generation of affinity and software operations. In our report on strategic priorities from 2020, we highlighted significant gaps between leaders and followers (42%) and laggards (45%) when it comes to embracing ecosystems and partnerships. Leaders position themselves to gain market advantage before competitors make their moves.
Trend # 4: Affinity and program activities in the UK are a sign of what is possible.
USA. Insurers should always look from the outside to identify what is possible. Research released by Finaccord 2019 found more development of affinity and program sales through partners in the UK than in the US. In the UK, almost 30% of new car and home insurance sales go through these programs, compared to about 15% in the US. Similarly, about 20% of life insurance's new business in the UK takes place through affinity and program activities, almost twice as much as in the US with 10%, as shown in Figure 2. [iii]
Finaccord credits the more active involvement in the UK of commercial units, but this trend is almost certain to grow in the United States as well, as the continued increase in retail consolidation and ecosystem development will enter a mature arena for software operations.
Figure 2: Affinity / Program business, UK vs. US
Trend # 5: Younger buyers are open and expect new, innovative channels.
There are significant opportunities to accelerate and expand affinity and program business growth by leveraging new, innovative partnerships – broadening your ecosystem and ultimately market reach. The broader ecosystem will include additional channel opportunities that will be embraced by a growing generation of younger buyers.
This is illustrated in Figure 3 from our consumer survey from 2019, which showed the strong interest, especially the younger generation, in new alternative alternatives. which affinity and program activities can utilize.
Figure 3: Channels that consumers used to buy insurance on
We made a deeper dive into these data in our consumer survey 2020, especially for life and car, shown in Figure 4 and Figure 5. These diagrams show that both generational groups are open to new channels, but the younger generations surpass the interest of the older generations anywhere from 10% -40%.
Figure 4: Consumer interest in life insurance purchasing channel alternatives
In car insurance, 9 of the 10 channel alternatives show 50% or more interest in the younger generation compared with only 6 in 10 for the older generation.  Figure 5: Consumer interest in car insurance channel alternatives
Scratching the Surface
The point is that today's affinity and program activities only scratch the surface, especially when it comes to new partners. They need to adapt and expand their vision of partnership. The desire and expectations for a wider range of alternatives and the untapped market potential underline the need to consider how and where companies must reach and interact with the younger generation, and to be there with quick commitments and purchasing calls.
This is why partnerships and an ecosystem are very strategic in helping insurers expand their reach and presence to where their customers will be, providing the multiplier effect for growth. The advantage of adapting to this new market dynamics is that we go from "selling" insurance to "buying" insurance and in the process create a scalable, sustainable business model to accelerate growth.
In our next blog we will consider markets and products, compare traditional software and affinity goals and emerging markets. Where are the gaps in current offers that can give insurers targeted expansion? How will new digital platform offerings help operators quickly shift channel opportunities within their application and affinity strategies?
For a preview, you can set up our webinar, The Power of the Insurance Niche Market: Program and Affinity Business is Hot Hot Hot! . Next week, download our new report on Thought Leadership, A Roadmap for the Future of Insurance: Programs and Affinity Activities.
[i] "The program's business revenue jumps 12% to $ 40.5 billion in 2018," Target Markets Program Administrators Association, https: //www.targetmkts.com/component/k2/item/2574-program-business-revenues-jumps- 12-to-40-5b
[ii] “Managing General Agents, Super Model of the Insurance Industry,” Conning 2019
[iii] “Affinity Insurance Markets: UK and US Compared”, Press Release from Finaccord, 18 November 2019 , https://www.finaccord.com/Home/About-Us/Press-Releases / 11-18-2019-12-00-00-AM