Insurance brokers provide unquestionable value to their customers, leveraging deep insurance and industry expertise to deliver security and peace of mind for the client’s operations - however, continually rising expectations of value provide ongoing challenges and opportunities to refine and evolve underlying value propositions and maintain relevance. Mike Emmett, CEO and managing director of AUB Group, joins Insurance Business with a new monthly column.
Insurance has not been immune to the wave of disruption across major incumbent industries led via advances in technology, changing customer behaviours & expectations and the evolution of regulatory environments. The recent focus on the financial services landscape in Australia as a result of the Hayne Royal Commission has shone a light on questionable practices in many areas of the financial sector, resulting in strong calls for financial firms to deliver better client outcomes. While this may be unsettling for some, the evidence points to an insurance broking sector that is beneficial for the insured, insurers and the economy as a whole. Looking ahead, adaptation to the changing landscape, and a continued focus on driving client value will be key to the sector’s ongoing relevance and growth.
Brokers provide better client outcomes
Insurance as an industry is inherently complicated requiring deep expertise and experience to ensure appropriate protection for a client’s business operations. Insurance customers understand their core market but generally lack the time, expertise, access to information and scale required to achieve insurance outcomes in an efficient and effective manner. Clients respond to the dilemma by partnering with a dedicated risk management professional in the form of an insurance broker, who focuses on understanding the client’s needs and provides relevant solutions that deliver the best risk management and risk financing outcomes for their business. The success of the insurance broking model can be illustrated by its ability to provide:
- A comprehensive risk assessment of a client’s business needs, leveraging experience, expertise and access to industry-wide data analytics and risk management tools;
- Market-leading products and solutions that can be tailored to provide fit-for-purpose coverage for each individual client;
- Ability to provide market leading pricing outcomes in a contestable platform due to relative scale, specialism and carrier relationships; and
- Support of claims submissions, with brokers generally able to achieve better claims outcomes and higher claims satisfaction for clients than in a non-intermediated distribution model.
As a result of the brokers’ value proposition, ~97% of the commercial insurance market continues to be intermediated with most brokers achieving very high retention rates, highlighting ongoing trust by clients in their risk partners. With respect to recent scrutiny of the financial services market, NIBA recently reported that in 2015/16 there were 6,500 FOS complaints made against insurers with only 344 against brokers, and this reduced to 216 in 2016/17, reflecting the value observed by clients.
Driving an enhanced broker proposition
In light of the significant changes that are taking place in the current external environment, being able to communicate the core value proposition will be critical to separating ‘noise’ from genuine areas of improvement in the broker value proposition.
Key areas where the industry needs to evolve to close the gap between customer expectations and the existing reliance on legacy models include:
- Transition from a product to a solution mindset
Clients need more than product ‘middlemen’ and the most effective brokers are those who provide a genuine risk-partner relationship, understanding the client’s risk appetite and delivering a tailored solution to meet specific needs. Leveraging data to deliver client insights, influence product design and using technology to deliver risk prevention and mitigation solutions supplementing core event-driven insurance needs will help drive new value, while increasing the depth of broker-client relationships.
- Education of existing and new clients on the value and criticality of insurance
The small-to-medium sized business sector is underinsured, and it is the role of the risk adviser and the broader sector to help business owners understand the importance of pro-actively identifying and protecting against risk exposures to their operations. According to a report by the Insurance Council of Australia (reported by McKinsey), in addition to under-insurance, a further 13% of businesses in Australia are not insured at all. Establishing how to communicate this reality and its risks to clients is critical to ensure that they are adequately protecting their business interests.
- Embrace technology and digital disruption
Unfortunately, technology is generally seen as a risk and challenge to the future of the insurance broking industry. However, brokers that embrace the role of technology and respond strategically will be well positioned to establish significant competitive advantage. Strategic adoption of technology can allow brokers to uplift capability and enhance their proposition by:
- Leveraging data and analytics tools to identify and deliver industry, product and client insight;
- Enhancing customer experience through digitisation and reduced time-to-serve;
- Increasing market exposure and client engagement through partnerships in parallel industries, markets and ecosystems; and
- Leveraging digital customer engagement models to reduce cost-to-serve, increasing the ability to compete effectively and efficiently in the end-to-end spectrum of insurance customers. This is particularly important in the low value, high touch commodotised end where increasing competition for non-traditional players with a low-cost base and high investment in client engagement is driving a shift in consumer behaviour.
Commercial Insurance is complicated, prone to misunderstanding and misinterpretation by the inexperienced. The professional risk advice provided by brokers enables clients to best understand their risks and mitigation options. This advice is key to the insurance industry and should not be dumbed down to a debate about the sale of generic products at the lowest price.