Planning ahead: The future shape of risk distribution
Looking into the future and making the right strategic decisions is key to success for any business and, as brokers surveyed for the Future of Risk Distribution 2021 report revealed, there is a lot to consider right now
Will humans be replaced by machines? That is a question that continues to vex everyone from world leaders to business leaders.
It is a question that challenges every business, insurance broking included. In this sector, the question has been whether machines can successfully underwrite risks and thereby remove the underwriting role and with it, the brokers.
Will brokers be needed if insureds can simply type in a few details and the machine can spit out the required premium? That, of course, has been the pattern for retail insurance but commercial insurance has always remained apart.
Brokers argue that they are needed to fully understand the complex and bespoke nature of commercial risks. But does that remain true? And how can brokers maintain that argument and remain valid as technology plays an increasing role across the whole insurance sector, including corporate insurance?
SEARCHING FOR GROWTH
Some 70% of European brokers predicted that their growth will come from within Europe in the next five years, followed by Asia.
But how will that growth come? And what will the shape of those brokers be? Those were the questions facing brokers who responded to the Future of Risk Distribution 2021 survey.
In the main, they agreed that the future of brokers was rock solid, with 57% of those surveyed saying they were optimistic about the future. However, 44% did believe that broker consolidation was reducing choice for insurance buyers.
With the survey responses split fairly evenly between those who worked for large groups (43%) and those from network brokers (43%) – the remainder working wholly independently – the respondents felt their model was the right one and would survive into the future.
The brokers agreed that one of their value-adds was that they worked closely with their insured clients to develop strong insurer relationships for the longer term.
That tripartite relationship has never been more important than in the current hard market, which has allowed brokers to demonstrate their value like never before. “Midsized brokerages like us work hard to develop those relationships. We are really about working together for the good of our client for many years to come,” said one.
Overall, they were confident about the future, although they were also very aware of the need to adapt with changing times.
NEW WAYS OF WORKING
Technology, for example, will be a key differentiator in the future. The brokers admitted that many of those technological changes are being driven by the insurer and they have no option but to embrace the new ways of working imposed by the carriers.
In many ways, they agreed, that was no bad thing. Innovation in terms of technology has fuelled efficiencies, given all three parties greater transparency and allowed new products to be developed.
So far, the brokers said, there was little sign that technology could replace their role entirely. For the moment, the carriers are offering different solutions, requiring different pieces of information and until there was just one system, brokers would still be needed. It might ultimately change the way brokers work, they agreed, but for now the question is whether or not technology is delivering on the promised benefits.
The complexity of corporate insureds’ programmes would probably ensure a healthy future for brokers, they said, along with the need for bespoke solutions.
And before a machine could replace them, there needed to be a much better flow of information. That was a particular issue in terms of claims, one said: “The data needs to be better shared between insurer, broker and loss adjuster if we are to make positive improvements. For that we need standardisation; and at the moment all the insurers are promoting their own systems.”
Another suggested that standardisation was needed across the whole continent and predicted that this was where a major disruptor could take advantage.
Still another suggested that brokers should be more proactive. “We are lagging in terms of technology. A lot of things could be standardised – the quotation process for example, where everyone uses different formats and questions. Each risk is a little different but the questions are the same.
“A lot of smaller businesses, particularly in personal lines, will see more competition from tech firms into the future,” he warned.
“Technology is changing everything,” said another. “We have no choice but to invest in technology or we risk losing everything. As the insurers move onto new platforms, we have to move with them or in the end we won’t be able to function.”
BEYOND TECH
However, the brokers were also adamant that the future was not just about technology. They also have to consider their own operating style. Some 86% of those surveyed felt that a mix of fees and commission was the right model for them, with just over 8% saying it should be a fee-only model and 5% wanting to rely on commissions alone.
And above all, they agreed, the conversation should really be about the relationships. They believe that the hard market has actually strengthened relationships with insureds and shifted brokers away from such a tight relationship with insurers in favour of their clients – and that was no bad thing, they said.
Technology does have a role to play in that – being able to share more information helped cement their personal relationships, for example.
But the key to success has been good communication. Spending more time with insureds sorting out their programmes has not only allowed the brokers to see and understand their client risks better, but it has shown off the expertise of the broker to the client.
One suggested: “I think the role of the broker is changing and that will force insurers to maintain the relationship with the broker. The hard market has shown clients the need to understand insurance and how it works.”
They all agreed that the hard market has been more time consuming but the payback of that has been this improving relationship with insureds. And they are confident that when the market turns once more, that relationship will remain important.
“Insureds will need us to have those tough conversations with insurers, both at the underwriting stage and when it comes to claims. We can help steer the clients through what is insured and what is not covered. We are acting much more like advisers than we did in the past and that is a good thing.”
Almost half of the brokers surveyed (49%) believed that specialist knowledge of the markets was key for insureds in choosing to use a broker, while a further 38% said the ability to negotiate was also a deciding factor.
Interestingly, very few (1%) said it was about handling claims on behalf of the client and only 7% said it was about international reach.
In a more complex world, they agreed, concentrating on what they do best was allowing their clients to concentrate on what they do best. It was important, they said, to recognise that risk managers were doing more than managing the insurance programme and by taking some of that heavy load off their shoulders, the brokers were ensuring they had a valued role for the future.
MAKING CLIENTS’ LIVES EASIER
Reverting to the use of technology, the brokers agreed that it was an extremely useful enabler and that they have no choice but to embrace it. However, they also believed that the advice role was the missing part that was hard for technology to replicate and which, for now, was the reason why their future remains bright.
“Our biggest opportunity is to work with clients on identifying any problems created by insurers and to make their lives easier. We can do that through creating platforms but we do not want to simply have such a platform imposed on us by the insurers. Because that will not serve our customers as well as it will the insurer,” said one.
“Technology will allow us to do business better and spend more time with our clients – and that is a big win,” the broker added.